Income protection insurance
Compare income protection insurance quotes with our preferred provider, PMI Partners*
Designed to cover your outgoings if you're unable to work
Helps you to pay your bills and maintain a good standard of living
Choose from policies that begin to pay out between 1 and 90 days after you stop working
Income protection insurance explained
What is income protection insurance?
The purpose of income protection insurance is to replace your income with a monthly payout if you are unable to work due to an injury or illness. The maximum amount you can claim is usually your net monthly earnings after tax, minus any state benefits that you may be able to claim – typically this is in the region of 55-65 per cent of your gross earnings. Income protection is designed for anyone who has dependents or anyone that might struggle to meet financial commitments if they are unable to work.
What types of income protection insurance are available?
There are several types of income protection insurance policies:
Guaranteed policies – This is where the premium you pay stays the same throughout the policy term unless you increase the cover available. This is normally the most expensive type of policy in the short term but can be more cost effective in the medium and long-term.
Reviewable policies – These are reviewed regularly, usually annually, meaning that your premiums could increase due to your age or changes to your health. They usually start cheaper than guaranteed policies but could be more expensive in the long term.
Age-related policies – These policies increase every year in line with your age, but you will know in advance what these increases will be. They are particularly popular among those who, typically, are more likely to make a claim, such as such as smokers and those with high-risk occupations.
What should you look for from an income protection policy?
In addition to a regular monthly payout, some policies may offer additional benefits. These can include terminal illness cover, which is often offered as an optional extra for an additional premium, a lump sum at death; a waiver of premiums, which provides cover for your premiums while you are incapacitated; and support for rehabilitation. When taking out a policy you should be wary of exclusions that could invalidate a claim – for example, most insurers will not pay out for absences from work caused by self-inflicted injuries.
How to choose the right income protection insurance policy
Income protection policies vary widely based on a number of factors including your age, gender, medical history, occupation, whether or not you smoke and your alcohol consumption. As such, there can be substantial differences in the quotes you receive from different providers. Though you can buy directly from banks, building societies, insurance companies and financial advisers, it is often more cost effective to take a thorough overview of the market before you buy to find a policy that's right for your needs.
Be sure to enter all your information accurately, as omitting or providing inaccurate information may invalidate your claim. Before deciding to purchase a policy you should ensure that the terms of the policy meet your demands and needs.
For more information, read our income protection insurance guide.
Our preferred provider
We have partnered with PMI Partners*, our preferred provider for income protection insurance, to help you choose the right deal to suit your needs.
Income protection explained
To help you decide if income protection insurance is right for you, we've compiled a short guide that explains what it is and how it works.
What is income protection insurance?
Income protection insurance is designed to replace your income with a monthly payout if you are unable to work due to injury or illness. It is sometimes referred to by its abbreviated form - IP insurance.
The maximum amount of income you can recover through this type of insurance policy is broadly your net monthly earnings (i.e. your earnings after tax) less an adjustment for the state benefits you can claim. This usually equates to a maximum of 50-65% of your gross monthly earnings (i.e. your earnings before tax).
Policies start to pay out after a deferred period, which is usually 4-52 weeks duration, and continue to pay out until you return to work or the policy expires (usually when you reach retirement or at the end of a fixed period). Normally payouts are tax free.
There are two main types:
Short Term (Accident Sickness and Unemployment) (Payment Protection)
These are plans that pay out for 12-24 months, and are designed to be low cost, simple and available to the majority. They usually exclude things like pre existing medical conditions, back problems and stress but can be extended to cover unemployment.
Premiums are often based on age, but are not affected by the type of employment of your medical history.
Long Term (Permanent Health Insurance)
These are plans that focus on health not employment and provide you with a long term income and pay for as long as you will require usually right up to your normal retirement age. To do this they have to look more carefully at your medical history and type of work and the risks are reflected in your premium.
Why do I need it?
Income protection insurance may be suitable for you if:
You would struggle to maintain your monthly financial commitments in the event that you are unable to work due to illness or injury.
You have dependents.
You are self-employed
Is it really necessary? What about State benefits?
State benefits provide limited support and some benefits require a prolonged period of incapacity before you become eligible.
You can visit the Directgov website to find out more about benefits for the ill and injured†.
Is payment protection insurance the same as income protection insurance?
No. Payment protection insurance provides cover for personal loan repayments and/or minimum monthly credit card repayments if you are unable to work due to accident, sickness or unemployment. It is sometimes referred to by its abbreviated form - PPI - and tends to offer short term cover only, usually for 12 - 24 months.
Is mortgage protection insurance the same as income protection insurance?
No. Mortgage payment protection insurance pays out an amount equivalent to your monthly mortgage payment if you are unable to work due to accident, sickness or unemployment. It is sometimes referred to by its abbreviated form - MPPI - and tends to offer short term cover only, usually for 12 - 24 months.
Read our mortgage protection guide for more information about MPPI.
What types of income protection (Long-term PHI) insurance are available?
There are three main types of policies available:
Guaranteed policies
With this type of policy the premium you pay stays the same for the duration of the policy term - whether it is 5 years or 25 years - unless you choose to increase the cover available. If you do increase your cover then your premiums will increase pro rata. This type of policy tends to be the most expensive initially but can work out cheaper over the medium to long term.
Reviewable policies
Reviewable policies are reviewed by the provider at regular intervals, often annually, meaning that the premiums you pay will increase. Although reviewable policies tend to start off cheaper than guaranteed policies they can work out more expensive over the medium to long term.
Age-related policies
With this type of policy your premiums will increase every year in line with your age, however you will know in advance how much the increase will be. As their cost is unaffected by gender, lifestyle or occupation age-related policies are often a popular choice for people who pay higher premiums due to being a greater risk to insure e.g. women, smokers and those with high risk occupations.
What cover can I expect?
Aside from a regular monthly payout, cover may also be available for:
Terminal illness
If you are diagnosed with a terminal illness that is likely to lead to your death within a 12 month period then your insurer will allow you to take a lump sum benefit equivalent to the benefit that would normally be paid over a set period e.g. six months. Depending on the policy this cover may be included as standard or available as an ‘optional extra’ for an additional premium.
Death
The majority of income protection policies do not offer a death benefit, however if cover is available then the insurer will pay a lump sum based on your monthly benefit amount.
Waiver of premiums
In order for your income protection policy to remain valid you will need to maintain your premiums even when you are unable to work due to illness or accident. Waiver of premiums provides cover for your premiums during the period you are incapacitated. Normally it is available for an additional premium rather than included as standard.
Rehabilitation
Insurance companies are starting to recognise that rehabilitation is an important factor in getting policyholders back into work therefore they may offer additional support such as retraining and assistance with finding a new job. Some insurers will also pay a partial benefit if you go back to work part time.
Remember! Cover can vary significantly between providers, so it's important to check exactly what level of cover you are getting from a policy before you buy.
What deductions can I expect?
If you fall ill or are injured an income protection policy will pay out up to the benefit limit but only after deducting:
Sick pay or wages.
Income from self-employment.
Any pension payment that starts on the date of incapacity.
Insurance payments from another policy, such as PPI policy.
Other types of income, such as dividends from shares etc.
Usually your payout will not be reduced for:
Social security benefits
Means tested benefits, such as income support.
Investment income.
In the next part of our guide we look at arranging income protection insurance in more detail.
Arranging income protection insurance
Arranging income protection insurance can provide peace of mind in the event that you fall ill or are injured, so knowing what to look for when you compare policies is the key to getting the right cover for your needs.
How much cover do I need?
The maximum amount of income you can recover through income protection insurance is usually 50-65% of your gross monthly earnings (i.e. your earnings before tax). The payout is normally tax free so you do not need to insure your gross income. The more you insure for, the higher your premiums will be; therefore you may prefer to cover your main expenses only rather than all the payments you make each month.
Remember! As your earnings increase over time you should review the amount of cover you have. Some insurance companies will allow you to review this on an annual basis; others will require proof of salary increase, etc. You may also be able to "index link" your cover so that it increases in line with inflation. If you do index link your cover you should still regularly check that it meets your needs.
What about the deferred period?
Policies start to pay out after a deferred period, which is usually 4–52 weeks duration, and continue to pay out until you return to work or the policy expires (usually when you reach retirement or at the end of a fixed period).
You can choose the length of the deferred period when you take out the policy – the longer the deferred period is, the cheaper your premiums will be.
Remember! Always choose a deferred period that won’t cause you undue financial hardship
Remember! Your choice of deferred period also depends on the financial back up you have. For example, if your employer pays your full salary for the first six months of sickness then you only need cover from month seven.
What are exclusions?
An exclusion is a circumstance of event – such as a particular condition, illness or injury – that can prevent or invalidate a claim e.g. normal pregnancy and childbirth, self-inflicted injuries, misuse of alcohol or drugs and pre-existing conditions that were diagnosed or treated before the insurance policy was taken out.
Remember! Always check the policy documents for a full list of policy exclusions.
What factors affect the cost of a Long-term income protection policy?
Each insurance company has its own set of underwriting criteria to determine how much a policy will cost. They will ask a series of questions to everyone who is interested in taking out a policy with them as this helps them to identify the risk they are taking on i.e. how likely they are to pay out.
Generally, insurers evaluate (rate on) the same factors when calculating premiums, but as no two risks are identical, prices can vary from one company to another. The cost of your premium will be affected by the amount of benefit you want to receive, the deferred period, the benefit period (i.e. how long the policy will pay out for) and any optional extras you add to the policy.
Some individuals will be considered a greater risk to insure because there are factors which the insurer considers may contribute to illness or injury.
The main areas the insurer will look at are:
Age
Gender – women tend to pay more due to risks such as breast cancer and pregnancy related illnesses, etc.
Medical history
Family health history – may look at grandparents, parents and siblings
Occupation – rates whether the occupation is ‘high risk’ e.g. armed forces, pilots, fishermen, offshore oil or gas industries, people who work at heights. Also looks at the percentage of manual work, heavy lifting and so forth
Sports and hobbies – some pastimes are considered high risk e.g. climbing and mountaineering, hang gliding, motor sports, sky diving, skiing, horse riding, etc.
Smoking or tobacco use – due to proven links between smoking and some diseases, such as lung and throat cancer
Alcohol consumption – due to proven links between alcohol and some diseases, such as hepatitis and cirrhosis
The insurer may also adjust your premiums to reflect the level of risk you present. This may mean that your premiums increase from the original quotation or illustration you received.
Remember! Failure to disclose relevant information may affect your risk rating and could invalidate your policy.
What else should I look out for when arranging income protection insurance?
When an insurer assesses a claim it decides whether or not you are fit to work. This assessment will take into account the occupation profile of your policy.
If you have a "usual occupation" policy then the insurer will require you to be unfit to pursue your own occupation.
If you have a "suited occupation" policy the insurer will stipulate that you must be unfit to do your own job or a similar one for which you are qualified.
If you have an "any occupation" policy the insurer will stipulate that you must be unfit to pursue any occupation.
While usual occupation policies are generally the most expensive, they do offer the best cover.
Remember! If you change your occupation during the term of the policy you will need to inform your insurer, otherwise it may prevent or invalidate a claim.
Where can I buy an income protection insurance policy?
You can buy income protection insurance through a financial advisor, bank, building society or insurance company.
Remember! The cheapest policy may not provide the right level of cover for your needs. By paying a little extra for your insurance it is usually possible to secure better cover and therefore get better value for money.
Do I need independent financial advice?
If you are in any doubt about the type of income protection insurance or level of cover you require you may wish to seek independent financial advice before committing to a policy. Independent Financial Advisers (IFAs) are authorised by the Financial Services Authority (FSA).
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