What is Income Protection Insurance?

What is Income Protection Insurance and what does it cover is asked daily in our business? It’s easy to learn, read our 5-minute article.

In this article, you will learn What is Income Protection Insurance, how much cover you might need and how long you should have a policy for. Lastly, I’ll discuss what factors may affect the price:

So what is Income Protection Insurance?

Put simply, it’s basically your own personal ‘sick pay’. 

It pays you a monthly income to replace your wage or salary if you’re unable to work due to any accident, sickness or injury. 

All you need to decide is how much per month you’ll need, how long you can support yourself for before you’ll need ‘help’ from the insurer and how long you want to be covered for.

Just so you know, most insurers will pay you up to 60% of your monthly income tax free if you need to claim. 

You’ll pay your premium via a monthly direct debit once you are insured. 

What Reasons Might You Need to Buy an Income Protection Policy?

  • Self-employed – if you must work to earn, how are you going to earn if you can’t work? An Income Protection Policy will replace your loss of earnings whilst you’re on the mend.
  • A Poor/No Sick Pay Policy – most employers have some sort of sick pay policy for their employees, which is great but if yours doesn’t or it’s not very good then an Income Protection Policy can top up or replace your salary to help you pay for your bills whilst you’re off. 
  • Main Bread Winner – If you’re the main or only earner and you have a family to support, that family will still need supporting if you’re unable to work, having an monthly income courtesy of an insurance company will take the financial pressure off your shoulders.
What is Income Protection Insurance, More than Money

How Much Cover Should You Take Out and How Long For?

Ok, so there are two main ways to figure out how much per month you’ll need or

  • Your Essential Outgoings – I’m talking about the bills that HAVE to be paid every month just in order for you to get by e.g. you can go without that cheeky Friday beer or takeaway, but can’t stop paying your rent or mortgage every month otherwise you’ll be homeless. You’ll need to consider things like gas, water, council tax, debt repayments and food as the first expenses that need to be paid for. 
  • Get as Much as You Can – simple right? Well, most insurance companies will insure you for up to 60% of your income, which is based on your income before it’s taxed meaning the actual pay out you receive from the insurer will be closer to what’s actually paid into your account every month. Finally, I always say something is better than nothing so why not take as much as you can afford? You’re better of paying £10 per month for some cover then nothing at all.  

In regard to how long you should run the policy for, there is no right or wrong answer, although I would advise you to think about your retirement age when choosing the length of your plan or until your youngest child has grown up, moved out and out of your hair.  

How Long Does It Take The Insurance Company to Pay Me?

The insurance term for this part would be called a ‘deferred period’ basically it’s the period between you being signed off work and receiving your money. The policy holder (which is you) chooses this period. 

In terms of how long you should choose, well this depends on three factors; if you’re employed, if you already have insurance or how long you can support yourself for. 

  • If You’re Employed – put simply the insurance company will start paying you when your employer stops e.g., if you have a sick pay policy that pays your wage for the first 4 weeks of you being signed off of work, you would choose a 4 week ‘deferred period’ 
  • If You Already Have Insurance – If you love insurance as much as we do and have already set up an Income Protection Policy, you’ll have to set your new insurance to start paying out when your current one stops….when my current one stops you ask?! I’ll get to this part next, don’t worry.
  • Supporting Yourself – this ones pretty straight forward, if neither of the above apply to you, work out how long you can support yourself or family for before breadline day arrives, you’ll want to look at savings, cut backs you can make and the income left from your partner e.g. if you know you have two month’s worth of savings, you might want to choose a two month deferred period. The longer the deferred period, the cheaper your premium!

You will need to provide proof you’re ill to your insurer in order to make a claim. This could be in the form of Doctors letters, medical files, scan results or a signed letter from your employer confirming your time off work. You’ll be paid once this has been received, and after your chosen deferred period ends. 

How Long Will the Insurer Pay Me Out For?

Again, this is up to you, you can either have the monthly pay out running until the end of your policy or for a set period e.g., for a maximum of two years. 

To expel a quick myth here, just because you chose to pay extra and have a pay out that runs until the end of your policy, doesn’t mean you can have it until the end of your policy. To explain, the insurer will only pay you for the period you’re signed off work for, you can’t break your arm and expect to claim for the next 30 years (it would be nice though). 

Hence why it’s sometimes a good idea to have a pay out period of up to two years (or longer) as this is cheaper and statistically, you’re likely to return to work at some point for most injuries or illnesses. Although, if the option for a pay out until the end of your policy is genuinely affordable, take it.

Will My Premiums Stay the Same or Increase?

This depends on what type of plan you take; I’ll explain the different types below.

  • Age Related – If you see these two words in the description of your policy it means your premiums increase every year as you get older, not by much, but you could be paying a lot more in 10 – 20 years from now. 
  • Reviewable – This means every few years your insurance company will ‘review’ your insurance and will either increase, decrease or keep your premiums the same, though normally it will be increased.
  • Guaranteed – Your monthly premiums will not change, ever. Unless YOU choose to change your level of cover etc. 

Can I Claim More Than Once?

The short answer? Yes, provided your insurance is still in place you can make multiple claims throughout your plan and there will be no effect on your monthly premium.  

Which Factors Affect the Premium?

  • The amount per month you want to be insured for
  • How long you want to be insured for
  • How long you want your max pay out period to be
  • The length of your chosen ‘deferred period’
  • Your age
  • Your health
  • Your lifestyle
  • Your family medical history
  • Hazardous jobs and hobbies may also affect the size of your premiums.
    For example, if you’re a pilot or enjoy mountain climbing, then you may see your prices go up.

We hope we have answered What is Income Protection Insurance? Read our article, ‘HOW MUCH DOES INCOME PROTECTION COST?’ to get an even better understanding of this type of insurance.


I started my career in finance 8 years ago. I’ve gone from advising on insurance in my home county of Kent, to working in the big city of London. I started More Than Money with my Dad and Brother, to get away from the 'sales environment'. When you're a qualified Adviser, the quality of your advice has to come first, not a 'sale on the board'. I thought, if I cant find that environment elsewhere, well I'll create it myself.

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