What is income protection insurance?

Not sure what something means? Have a look at our Protection insurance glossary. Income protection insurance is a long-term insurance policy to help you if you can’t work because you’re ill or injured. It replaces part of your income if you can’t work because you become ill or disabled. It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner. There’s a waiting period before the payments start. You generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments.
It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity).
You can claim as many times as you need to, while the policy lasts.
Speak To An Adviser
With income protection insurance, everything depends on getting the right policy – so it’s best to get advice from an independent financial adviser or broker. It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness. It’s not the same as short-term income protection, which also pays out a monthly sum related to your income, but only for a limited period of time (normally between two and five years) and can cover fewer illnesses or situations.


Do you need it?


According to the ABI, one million workers a year find themselves unable to work due to a serious illness or injury. It doesn’t matter whether or not you have children or other dependants – if illness would mean you couldn’t pay the bills, you should consider income protection insurance. You’re most likely to need it if you’re self-employed or employed and you don’t have sick pay to fall back on. Check what your employer will provide for you if you’re off sick. Read more in What financial protection might you already have?



Who doesn’t need it?


You might not need income protection insurance if:

You could get by on your sick pay – for example if you have an employee benefits package which gives you an income for 12 months or more. You could survive on government benefits – but they might not be enough to cover all your outgoings You have enough savings to support yourself – remember that your savings may need to see you through a long period.
You could take early retirement – if you’re near retirement age, perhaps you could afford to retire early. If you are unable to return to work you may be entitled to take your pension early.
Your partner or family would support you – perhaps your partner has enough income to cover everything the two of you need.


Permanent health insurance provides a regular income for policyholders if they are unable to work due to accident or sickness. It is available to both the employed and the self-employed. Most individual policies are paid free of tax up to a maximum prescribed amount based on the current declared income. PHI provided by a company is usually paid ‘gross’ and then taxed at the claimants appropriate rate.


The benefits, which can be level or inflation-linked, start after a ‘waiting’, or ‘deferred’ period, which is set when the policy is taken out. This can range from 4 weeks to 52 weeks. Typically, the longer the deferred period, the cheaper the policy. The cost of a policy is also determined by your general state of health, age, occupation and the level of income required. Once the benefits have started, they will continue until the policy expires, or the insured person returns to work or dies. In many cases a policy will have a fixed term, which is usually linked to the standard retirement age.


Permanent health insurance is sometimes referred to as Disability Insurance, Income Protection or Income Replacement. We will assess the amount, and period of your cover, taking into consideration any payments you may receive from your employer. For more information on PHI cover please contact us 0n 020 8441 2605 or 01442 232 272. Alternatively click here for our enquiry form.


This article was source from https://www.moneyadviceservice.org.uk/en/articles/do-you-need-income-protection-insurance