What is income protection insurance?

Protecting your income has never been more important. With income protection insurance, you can build a vital safety net for yourself and your family by knowing that you’ll receive a regular income if you become unable to work because of illness or injury.

Whether you’re a single parent, self-employed, or want to protect your financial stability, income protection insurance offers valuable peace of mind. We’re here to help you understand how it works, how you can look at your needs, and how to find the right policy to safeguard your income and protect your finances and future.

Income protection insurance provides a regular income if you can’t work because of illness or injury, usually replacing a portion of your salary, helping you cover your usual living expenses while you recover.

You can use this money to cover regular essential expenses, such as rent or mortgage payments, groceries, as well as other day-to-day necessities. This means you have financial security and peace of mind for you and your family.

Do you need income protection insurance?

If you have monthly expenses you can’t miss, then it’s worth exploring income protection insurance. While you could use savings to help cover your finances while you’re off work, you risk completely draining your safety net.

When deciding on if you need income protection, it’s important to think about your family situation. For example, if you have a partner, would they cope with covering your portion of the rent or mortgage while you’re unable to work? Or, if you have dependents, such as children or elderly parents that you’re providing for, consider the support income protection could provide to ensure their needs are met - even if you can’t work.

We can’t always predict if something is going to happen. In 2023, over 15,900 people claimed against their income protection policies across the UK², which was a 9% increase from 2022. Claims for musculoskeletal issues were the highest, accounting for around 34% of all claims. By being prepared for the unexpected means that you can take the time off that you need to recover without worry or financial hardship.

How does income protection insurance work?

Income protection insurance can have a waiting period before your cover kicks in, usually lasting between 4 to 12 weeks. This is known as the deferred period. You will also have a set benefit period lasting until you start work again or you reach a specific age. This is usually for a fixed number of years.

We make the process of getting the right income protection policy easy. You’ll start by choosing a policy that suits your needs and budget with the help of our expert advisers. This will include choosing your monthly benefit amount, waiting period, and cover duration. It’s important to make sure that the monthly benefit amount is enough to cover your necessary expenses.

An initial chat with one of our protection advisers is free and an excellent way to get a sense of exactly what you need.

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Once you decide on the right policy for you, you’ll then begin to pay monthly premiums, meaning you’re covered by the policy. If you become unable to work because of illness or injury, you’ll need to submit a claim to your insurance provider and provide medical documents to support your payout.

Remember, your policy will have a waiting period, which can vary. This is the time that you must be off work before your policy kicks in.

Some income protection policies will also have exclusions. These will be certain conditions that are not covered and may include pre-existing conditions, such as mental health or certain types of injuries.

What does income protection insurance cover?

Income protection insurance will usually cover any loss of income you may have because of illness or injury. Most policies will cover a wide range of conditions, including:

Physical illnesses: Including, but not limited to, heart disease, cancer, strokes, and respiratory problems.
Accidents: These are injuries incurred from accidents, including car accidents, workplace accidents, or sports and recreation injuries.
Mental health conditions: Some policies will also cover conditions such as depression, anxiety, and stress-related illnesses.
There may be some exclusions, so be sure to read your policy carefully. These may include:
Pre-existing conditions
Self-inflicted injuries
Certain types of employment (such as having a high-risk job)

Some policies may have additional benefits, including a waiver of premiums if you can’t work. Additionally, some policies may allow coverage for rehab and treatment costs to help you return to work.

How much does income protection insurance cost?

Monthly premiums will vary based on your unique circumstances. Your age, health, occupation and lifestyle all play a part, but the biggest factor is the amount of coverage you need.

Keep in mind that the longer the waiting period, the lower your premiums are likely to be. Policies with exclusions may also have lower premiums, but consider what you need most and prioritise that. Many individuals tend to have their deferment period tailored to their work’s sick pay policies and when those may expire.

Many people overestimate the cost of insurance, but an adviser will ensure that your premiums work with your budget, tailoring the policy to suit your needs. A specialist adviser can help with this, so get in touch if you want to explore the cost of income protection more.

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What are the different types of income protection insurance?

Short-term income protection insurance

This policy will typically cover a more limited period, such as 6, 12, or 24 months, with potentially shorter waiting periods and lower premiums. This type of cover may work for you if you just need something to bridge the gap until you’re back on your feet again.

Payouts will typically be between 50-70% of your salary and will cover most illnesses and injuries that could prevent you from working for short to mid-term periods of time. These could include back pain, broken bones, and mental health conditions. Keep in mind that long-term policies will stay pay out for cases like this, but the deferment period may be longer.

Long-term income protection insurance

Long-term income protection covers longer periods, typically until retirement. Because of the longer payout time, the waiting period can be longer, and premiums may be higher. However, if something happens to you and you can’t work again, you’ll be covered.

Your deferred period could be anywhere from 4 weeks to a full year, depending on how long you feel you could cope through using your savings alongside any employer sick pay and benefits. The longer your waiting period, the lower your premiums will be. Your adviser will make sure that you’re appropriately covered based on your unique circumstances.

How much income protection insurance do I need?

Your current income, expenses, savings, and general family situation will determine how much cover you need. The more you earn, the more you’ll need to replace your income. If you have essential living expenses, you’ll need to make sure your payouts cover these.

Keep in mind that income protection rarely covers your entire salary, so you want to aim to replace between 60-70% of your pre-tax income. This should cover a substantial portion of your income without overwhelming your budget.

Your income may increase over time due to promotions or general salary increases but index linked policies will factor this in.

Index linking is a technique used by insurers to ensure that the sum you’re insured for is relevant to changes in the economy. It’s meant to help protect you from being underinsured. However, if your circumstances change because of things like job changes, you’ll need to speak to a protection adviser to review your policy.

How do I get income protection insurance?

The easiest way to get income protection insurance is through a protection adviser. Not only can they compare options for you based on a thorough fact find, they can offer personalised advice unique to your circumstances.

Mortgage Advice Bureau’s expert advisers offer a variety of ways to get in touch, whether over the phone, online, or face-to-face. We’ll work with you to find a solution that fits your unique needs and lifestyle.

Talk to us today to begin securing your financial future for you and your loved ones. After all, we can’t predict what’s around the corner, but we can prepare for it.

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Frequently asked questions

If you stop working voluntarily but were otherwise able to work, your policy will not cover you. If you meet the policy’s definition of “unable to work” because of illness or injury, then you should be able to make a claim. Income protection policies don’t cover redundancy, so you’ll need to account for this.

You’ll need to notify your insurer, provide medical evidence, complete a claims form, and then wait for a decision. The process may vary from insurer to insurer, but it’s relatively straightforward.

Some policies may exclude 0 hour contracts, while others may still include them. Eligibility ultimately varies based on your unique circumstances so speak to an adviser to find out more. Your adviser will help you work out whether you can afford a protection policy on your 0 hours contract.

No, income protection insurance and life insurance are not the same. Life insurance pays out a lump sum upon your death while income protection covers your income while you’re unable to work because of illness or injury.