Income protection insurance explained
In this guide, we will explain what income protection insurance is and how it works. We’ll help you understand if this type of insurance is right for you. You’ll also learn what is covered by the policy and how much it might cost.
What is income protection insurance?
Income protection insurance is a type of insurance policy that provides a regular monthly payment if you are unable to work due to illness or injury. The payout is tax-free and typically amounts to about 50% to 60% of your regular gross income.
Payments continue until you can return to work, or the policy term expires.
These payments can help you cover essential expenses, such as mortgage or rent, utility bills, childcare, and general living costs.
How does income protection insurance work?
Once you set up your income protection plan, you will need to pay a monthly fee called a premium. If you become unable to work due to illness or injury, you will receive a monthly payout. This payment can cover living expenses while you are not working. Your cover will last until the end of the term whichever is first.
You won’t be able to insure yourself for the full amount of your salary, but you can usually expect payout amount up to 60% of your gross salary, depending on how much you earn.
You and your insurer will also agree on a waiting period. This is also called the deferred period. This is the time you have to wait before your payments start after an illness or accident.
You can choose how long this waiting period will be, and it should match your sick pay from your employer. For example, if you get six months of sick pay, you would set your waiting period to six months. This means you can start claiming your income protection insurance after that time. The longer the deferred period you choose, the more affordable your monthly premium will be.
What are the different types of income protection insurance?
There are two main types of income protection insurance – short-term and long-term.
What is short-term income protection insurance?
Short-term income protection provides a monthly income if you are unable to work due to illness or injury. Payments are limited to a maximum period, usually between 12 and 24 months. After this period, you cannot make further claims unless you return to work and then become ill again.
Short-term income protection policies are often more affordable than long-term policies.
What is long-term income protection insurance?
Long-term income protection is also known as long-term sickness insurance. It covers you to the end of the term of the plan. This is usually set at retirement.
How do I know if income protection insurance is right for me?
Income protection provides financial security in case you are unable to work. If you depend on your income to pay bills and rent, for example, it could be a good idea to consider this type of insurance.
Income protection is worth considering if:
- You have limited savings - Think about how long your savings could cover you for if you were unable to work. Would it be enough to pay for your essential outgoings until you can go back to work?
- You have a family or dependants - Do your partner or children rely on your salary? Then, you may want to consider income protection. This could help to take care of them while you’re getting better.
- You have outstanding debt - are you currently working on paying off any credit cards or loans? You could use some of the money you receive from income protection to keep on top of these payments.
There are also instances in which income protection may not be the best option. For example, you have enough savings for bills, but not enough to cover your mortgage. In this case, you could consider mortgage protection insurance.
How much does income protection insurance cost?
Insurers will ask you to share certain information about your lifestyle and health records. This will affect how much you will pay each month. Many factors will affect how much your premiums cost, including:
- Your age
- Your medical history
- Your family's medical history
- Your alcohol consumption
- Whether or not you're a smoker
- Your job
- Your cover level
- Your cover term
- Your choice of deferred or waiting period.
Insurers will usually class different jobs at different risk levels. If, for example, your job is in a high-risk occupation category, you may need to pay higher premiums.
Do I need income protection and critical illness cover?
Both income protection and critical illness cover provide financial support if you become ill, but they work in different ways:
Income Protection: This policy gives you regular monthly payments that are tax-free. It helps replace your lost income if you can't work due to an illness or accident.
Critical Illness Cover: This type of insurance pays out a one-time lump sum that is also tax-free. It helps you financially if you are diagnosed with a serious illness listed in your policy.
The key difference is that with income protection, you can claim as many times as you need, while a critical illness plan might end after one claim. You can choose to have both income protection and critical illness cover for extra security.
Vitality life insurance
Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:
- A brand you can trust - In 2024, we paid out 98.9% of all Life Cover claims.*
- Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
- Access to Vitality partner discounts and rewards.
- Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
You're not alone in choosing Vitality. Over 2 million lives in the UK are now covered by our insurance, and we’re here to support you too.
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*VitalityLife Claims and Shared Value Report 2025
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Pays out to your loved ones if you die or become terminally ill.
