How Income Protection Insurance Works in the UK

Learn all about how protection insurance works and how you can apply.

Updated: June 13, 2024
Matt Crabtree

Written By

Matt Crabtree

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Are you currently out of work due to an illness or injury? With income protection insurance, you can ensure you've got money to keep you going until you can work again or until your retirement age.

You could receive income protection payments to compensate for the loss of income if you've become ill or recently disabled.

A wide range of income protection insurance policies and insurers are available in the UK. In this article, you'll learn all about income protection insurance and how to apply for it.

What Is Income Protection Insurance?

Income protection insurance pays you a regular income if you can no longer work because of disability or sickness.

The duration of income protection cover is until you can return to work or until you reach retirement age. You can use the money from the income protection insurance for bills, mortgage or rent, childcare, and other daily costs.

You can't claim income protection payments immediately if you fall ill or become disabled. Typically, there is a waiting period of four weeks and up to two years to claim.

The reason for the waiting periods is that you may not need immediate access to income due to potential sick pay from your employer, or you may be able to claim statutory sick pay for up to 28 weeks after you stop working. Once your sick pay period is over, you may start your claim for income protection insurance.

You must pay for the cover; typically, you pay monthly for the insurance, starting from as little as £10. The amount you pay will depend on the insurer's monthly premiums and contributing factors like age and the type of insurance you want.

The income you can claim will not be the total amount you’re paid from your employment. Payouts typically amount to about half or two-thirds of your earnings before tax. The income you receive from the policy is tax-free.

What Are the Different Types of Income Protection Cover?

You can apply for various types of income protection insurance coverage.

To give you an idea of what is available, we've compiled a list of all the types:

  • Short-term income protection: Protection for one to two years ensures you receive regular income in place of your wages in case of injury, illness or involuntary redundancy. You may not be protected if your employer offers a different role to accommodate your injury or illness.
  • Long-term income protection: Cover until you return to work, retire or until the income protection cover ends. Long-term income protection provides a more extended period than short, with policies offering a minimum of five years of cover.
  • Guaranteed policies: A guaranteed policy comes with fixed monthly premiums, which means you make monthly payments for your income protection cover.
  • Review policies: You can change the level of protection on your income protection plan after a set term.
  • Age-related policies: Premiums increase with age-related policies, but no other factors like occupation or lifestyle affect your monthly premium.
  • Permanent health insurance: Insurance that covers you until you reach retirement age. You will receive a percentage of your income if you have an accident or ill health that leaves you unable to work.
  • Accident and sickness cover: Cover stops after two years and pays you for your time away from work due to an accident or sickness.
  • Unemployment cover: Payouts typically start three months after losing your job. There is a deferment period, so that's something to be aware of.

You may come across critical illness cover, and although this is a health-related insurance policy, it is different to income protection insurance. Critical illness insurance covers ill health that is considered an acute illness, like a heart attack, cancer, Parkinson's disease and other fatal illnesses.

You don't get a monthly income from critical illness cover but a lump sum one-off payment. In most cases, income protection insurance is ideal as it covers a broader range of illnesses and accidents.

Income Protection Insurance: Pros and Cons

You may be unsure if income protection insurance is right for you, so to help you decide, we've compiled a list of all the pros and cons.


✔️ Accessible: Anyone can apply for income protection insurance, so if you're an employee or even self-employed, you can apply for income protection insurance.

✔️ Peace of mind: Knowing you've got insurance can give you peace of mind if you ever lose your job or have an illness or injury that takes you out of work for a while. You can rest knowing you'll receive regular payouts.

✔️ Policies cover additional costs: Most insurers offer a policy that covers additional costs for an injury or medical problem.

✔️ Long-term protection: You can get long-term income protection insurance compared to critical illness coverage.


❌️ Exclusions: You may be excluded from the income protection policy if you have any pre-existing medical conditions or self-inflicted injuries.

❌️ Waiting periods: Some policies have a waiting period before receiving a monthly income. For example, you may be out of work for a specific time.

❌️ It can get expensive as you age: Some policies may become more costly as you age.

❌️ It may not benefit you: You may find other options that will help you more and cost you less, like government benefits or schemes. Alternatively, your employer may provide you with adequate sick pay that covers the duration of your sickness.

❌️ No refunds: If you pay for income protection and never make a claim, you can't get a refund on what you've already paid.

How to Apply for Income Protection Insurance

Now that you know all about income protection coverage, it's time to learn how to apply for insurance and what to do.

You can apply for income protection in four simple steps.

1. Work Out How Much Cover You Need

Most insurers allow you to specify a desired percentage of your existing annual income for your coverage. You will need to create an audit of outgoings to help you work out how much cover you would need in case you need to make a claim.

2. Prepare Information

When applying for income protection coverage, you must provide information for the insurer. The information you provide will need to be honest. If you make any false statements found to be untrue, your policy could be invalidated, and you won't be able to claim in the future.

You will need to share the following information:

  • Personal details: You must share your name, age, address, employment status, and other information.
  • Health information: You must inform your insurer of your lifestyle if you smoke or drink alcohol, and your current health status. You may need to provide your family's medical history and your own.
  • Claim information: You must know the type of insurance you want, the amount of coverage you need and the desired length of excess period.

3. Read the Small Print

With any agreement you sign, you should check your insurance policy's small print to ensure you fully understand what the cover includes. You can also check for exclusions, if excess is payable, and ensure you can afford any costs involved.

4. Compare Income Protection Insurance

When you find the right insurers and provide all the necessary information, they'll usually give you a personalised quote. You should get quotes from different insurers to see if you can get the best deal and not just in terms of price.

You should look out for the following factors when deciding which insurers to choose:

  • Cover amount: Insurers will pay a percentage of your annual income. You want to ensure the percentage they offer meets your needs financially. Typically, insurers offer up to 70% of your job's yearly income.
  • Affordability: Cheaper isn't always better when paying for insurance. However, you want to ensure your payments are affordable. You must keep up with the monthly premium payments, which should be reasonable.
  • Payment periods: You can decide if you want short-term income protection ranging from 1 to five years or long-term that will last until the policy ends, usually retirement age.
  • Suitable deferred period: The time between your job ending and receiving your payments. The options can range from four to 52 weeks.

Alternative Options for Income Protection Cover

You may still be undecided if you need income protection; it is optional, but you might be thinking if it is necessary. And that’s up to you, but before you decide you should, there are options available that you may find more suitable. 

There are alternative options that may be available to you, such as:

  • Life insurance: Taking out a life insurance policy may be helpful if you want to leave your loved ones some money at the end of your life.
  • Critical illness cover: You can apply for critical illness insurance if your illness is long-term, critical, and in the policy's terms and conditions. Some life insurance products include critical illness coverage, so you should check for it first.
  • Death-in-service cover: Some employers offer a death-in-service cover that pays out a lump sum to your family if you die at work or have a death caused by work. You may want to check with your employer if they have this type of cover.
  • Savings: Instead of paying the insurer, you could put money aside from your monthly salary into savings. Putting money into a savings account will not only prepare you for any potential issues in the future with finances, but you can also earn interest on your savings.

Leading Income Protection Policy: The Verdict

If you buy income protection insurance, you can give yourself peace of mind if you cannot work in the future. You can concentrate on mending and adapting to life, knowing you'll receive regular payments whilst you're out of work instead of worrying about potential money troubles that could be caused by being out of work.

Different insurers offer different support and policies, so remember to compare income protection insurance providers when deciding which to use. Think about which suits your needs the best and provides you with the support you need.

Consider speaking with an independent financial adviser if you need further advice on money management.

Related Guides:


How Much Does Income Protection Insurance Cost?

What Are the Different Types of Income Protection Insurance Coverage?

How Does Income Protection Insurance Work?

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