Your income pays for everything else in your financial life. This is the insurance that protects it.
AFTER READING THIS, YOU WILL UNDERSTAND
- Exactly what income protection insurance covers, how much it pays, and for how long
- How it differs from critical illness cover and life insurance, and why the three are often confused
- Whether you are someone who genuinely needs it, and the factors that decide what it costs
This article is for anyone who relies on their monthly income, which is most working people. It is especially relevant if you are self-employed, if your household depends on one salary, or if your employer offers little beyond the legal minimum when you are off sick.
Most people insure their phone, their car, and their home without a second thought, and leave the income that pays for all three completely unprotected. Usually that is not a deliberate decision. It is just that nobody ever explained how this type of cover works.
What is income protection insurance?
Income protection is a policy that replaces part of your earnings if you cannot work because of illness or injury. It is not for redundancy, and it is not a lump sum. It is a monthly income, paid directly to you, for as long as you remain unable to work, up to the limits of the policy.
The amount is usually set between 50% and 65% of your gross salary. It is capped below your full pay deliberately, partly because the payments are tax free, and partly so there is always a financial incentive to return to work when you can.
A genuinely reassuring feature: there is no limit on the number of claims. If you recover, return to work, and become ill again later, the policy pays again.
What would you actually get without it?
If you are employed, your employer must pay statutory sick pay, which in 2026/27 is £123.25 a week, for up to 28 weeks. Some employers pay full salary for a period, but many do not go far beyond the legal minimum, and the only way to know is to check your contract.
If you are self-employed, there is no sick pay at all. Your income simply stops on the first day you cannot work. This is why income protection is so often described as the single most important policy for self-employed people.
A worked example:
- Priya is a self-employed graphic designer earning £42,000 a year. A back injury stops her working for eight months.
- Without cover: her income stops immediately. Eight months of mortgage payments, bills, and living costs come out of savings, around £18,000.
- With income protection covering 60% of her earnings and a 4 week deferred period: after the first month, the policy pays her £2,100 a month tax free until she returns to work, around £14,700 over her recovery.
Who actually needs income protection?
Ask yourself one question: if my income stopped tomorrow, how long could my household keep running? If the honest answer is measured in weeks or a few months, you are exactly who this cover exists for.
It matters most for the self-employed, who have no employer sick pay. For households that depend on a single income. For anyone with a mortgage and limited savings. And for people whose employer only pays the statutory minimum. It matters less if you have very substantial savings, a partner whose income alone could carry the household, or an employer with genuinely generous long-term sick pay.
What does income protection cost?
Premiums depend on your age, health, whether you smoke, your occupation, the percentage of income covered, and two choices you control: the deferred period and the claim length.
The deferred period is how long you wait after falling ill before payments begin, commonly 4, 13, or 26 weeks. The longer you can wait, because you have savings or employer sick pay to bridge the gap, the cheaper the premium. You can also choose between cover that pays until retirement and budget versions that pay each claim for a maximum of two years, which cost considerably less.
This is genuinely one of the most tailorable policies there is, which is why two quotes for the same person can look very different. Matching the deferred period to your actual sick pay and savings is where good advice saves you money.
KEY TAKEAWAYS
- Income protection pays a tax-free monthly income, typically 50% to 65% of salary, if illness or injury stops you working.
- Statutory sick pay is £123.25 a week in 2026/27. The self-employed get nothing at all.
- It is not the same as critical illness cover. Income protection covers anything that stops you working, including back problems and mental health, and pays for as long as you cannot work.
- It matters most for the self-employed, single-income households, and anyone whose savings would not last more than a few months.
- You control the cost through the deferred period and claim length. Longer waits and shorter claim periods mean lower premiums.
- There is no limit on the number of claims over the life of the policy.
QUESTIONS TO ASK YOUR FINANCIAL ADVISER
- Based on my sick pay and savings, how long a deferred period should I choose to get the best value?
- What percentage of my income can I cover, and what would the monthly benefit actually be?
- How would the policy define being unable to work for my specific occupation?
- Should I be looking at income protection, critical illness cover, or both, given my family situation?
- How much would this cost me each month, and how can we adjust the policy to fit my budget?
What would happen if your income stopped tomorrow?
It is an uncomfortable question, which is exactly why it is worth answering while it is still hypothetical. The answer decides whether income protection is essential for you or merely sensible.
Book a no-obligation chat with one of our protection specialists today. Ten minutes of honest conversation will tell you where you stand.
