Understanding Income Protection
Income Protection vs Redundancy Insurance: What’s the Difference?
Income protection insurance and redundancy insurance cover may look like the same thing. But there are key differences between the two. They're both designed provide a replacement income. It’s how and when they do that, which can cause confusion.
Income protection insurance provides a replacement tax-free monthly income if you can’t work because of illness or injury. So, it provides cover for a number of health-related scenarios. Whereas redundancy insurance only covers you when you get made redundant. Making it a very specific type of cover.
In this guide we take a look at income protection insurance and redundancy insurance.
We explore the key differences between the two and how each policy works. We also consider when to buy income protection insurance or redundancy insurance. And help you to decide which policy might be best for you.
What is income protection insurance?
Income protection is an insurance that pays a monthly amount to replace some of your income if you become ill or get injured and can no longer work. It can help you focus on your recovery rather than worrying about paying the bills.
The monthly payout can replace up to 60% of your gross salary, depending on how much you earn. This money can help meet your living expenses, such as rent or mortgage payments, and utility bills. Plus, the payments are usually tax-free, so you don’t need to pay income tax on them.
Income protection policies typically cover conditions such as back pain, broken bones, mental health issues like anxiety and depression, as well as serious illnesses including cancer and heart disease—provided these conditions result in you having to take time off work.
Income protection insurance in the UK specifically covers health-related problems. This means it doesn't cover redundancy, which is an employment issue. Being made redundant doesn’t stop you physically from working, unlike a serious illness.
Learn more about how income protection insurance works.
To receive the payments, you’ll need to meet the criteria of illness or injury set out by the insurance company. Most insurers will pay out if you can no longer perform your current role, as opposed to any role. This is known as ‘own occupation’. But each insurers definition of incapacity is different, so read the definition carefully.
Once your claim is accepted, you’ll receive a monthly payment until you return to work, retire, die, or the policy ends – whichever comes first. If you return to work but become incapacitated again, you can make another claim as long as the plan is still in place.
There are two main types of income protection insurance in the UK – short-term and long-term.
- Short-term income protection payments are limited to a maximum period, usually between 12 and 24 months. After this time, you can’t make further claims unless you return to work and then become ill again.
- 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.
When you set up your plan you can choose when you want payments to start. If you defer taking payments for a few months it will usually make the cost of your cover cheaper. This is because your payments will start after this deferred period, not as soon as you’re signed off sick.
This makes it a flexible option for both employed and self-employed people. For example, say you’re employed, and your employer offers sick pay for a year. You can arrange for your income protection payments to start when the sick pay ends. If you’re self-employed, and therefore don't receive sick pay from an employer, you can choose to start your payments sooner. After just one week if you want to.
The price of your insurance is based on a number of factors, including:
- Age
- Medical history
- Occupation and lifestyle
- Level of cover
- Deferred period
What is redundancy insurance?
Redundancy insurance is a type of short-term protection insurance. It pays out a monthly amount if you’ve been made redundant involuntarily. For example, if your employer restructures, and your role is no longer needed, redundancy insurance can pay the bills while you look for a new role.
You won't receive a payout if you choose to take redundancy, resign, are sacked or become unwell. The payout lasts for a few months, usually up to 12 months or until you find a new job. It can be up to 70% of your gross salary, so should cover the essentials.
When you make a claim, you’ll need to prove that you’re looking for work by registering with Jobcentre Plus. And you may have to show the insurer that you’re also claiming Jobseeker’s Allowance or Universal Credit. There’s usually a deferred period of around 30 days before you can start receiving payments. You can defer payments for longer if you have savings you can rely on. This should make the premiums cheaper.
You also can’t take out the insurance if you know there are going to be redundancies at your work. Insurers often include an exclusion clause. This is where you can’t make a claim for 3-6 months after you’ve taken out the cover. And it’s only available for full-time workers. Not part-time workers, contractors or freelancers.
This type of insurance is often packaged together with accident and sickness insurance. And called accident, sickness and unemployment insurance (ASU).
Key differences between income protection and redundancy insurance
Let’s look at key differences between income protection cover and redundancy insurance.
|
|
Income protection insurance |
Redundancy insurance |
|
What it does |
Provides a monthly tax-free payout. |
Provides a monthly tax-free payout. |
|
When it pays out |
If you can’t work due to illness or injury and you meet the criteria set by the insurance company. |
If you’re made redundant through no fault of your own. |
|
How much it pays out |
Usually up to 60% of your gross income. Payments continue until you return to work, retire, die, or reach the end of your selected payment term – whichever comes first. |
Up to 70% of your gross income. Payments last until you get a new job. Or up to a maximum of 12 months typically. |
|
Purpose |
To help pay for day-to-day expenses, such as your rent or mortgage, food and fuel bills. |
To help pay for day-to-day expenses, such as your rent or mortgage, food and fuel bills. |
|
Premiums |
Usually paid monthly. You can choose whether you want your premiums to stay the same or be reviewed every few years. Premiums will increase if you’ve chosen to link your payout to inflation. |
Usually paid monthly. Once bought, the price of the cover stays the same. You can’t usually link your payout to inflation. |
|
When it won't pay out |
|
|
When to choose income protection insurance?
In the UK, over 2.78 million people are considered as being on long-term sick leave1. Two of the most common reasons for long-term absences are mental ill health and musculoskeletal injuries2. Whereas 115,000 people were made redundant in the year to April 20253.
Income protection is worth considering if:
You’re self-employed. With no employer to provide sick pay, will your savings pay for your essential outgoings until you can go back to work? If not, income protection insurance could bridge the gap. Vitality’s cover can also help you get back to work quicker with access to a panel of health support services. Includes physio, therapy and cancer support.
Vitality’s Income Protection Cover also includes a Recovery Benefit, which provides access to a panel of health support services designed to help you recover and return to work. These services include physiotherapy, mental health support including CBT and counselling, cancer support and neurological rehabilitation.
Have financial dependents. Losing your regular salary as the main wage earner can be worrying. If your partner or children rely on your salary, income protection insurance can help pay with bills as you recover.
Have basic sick pay cover from your employer. Even if your employer provides sick pay, it may only last for a few months. And with statutory sick pay only £118.754, it’s not usually a full replacement for your salary. Income protection insurance can help provide cover for the long-term.
Have outstanding debt. Maintaining your regular income with an income protection payout means you can continue to pay off any credit cards or loans. Otherwise, you may have to use up your savings to keep on top of payments.
Have limited savings. If you’ve got less than six months’ worth of wages as savings then income protection insurance can provide a lifeline if you become ill or injured.
In 2024, Vitality paid out £1.8 million in income protection payments5.
Which insurance is right for you?
It’s really important that you fully understand what you’re getting when you buy any insurance. And that you shop around for a good deal. So, before you decide which insurance is right for you consider these key factors.
- Financial situation. Do you earn the majority income in your household? And if you’re no longer earning this amount, could your family manage? It’s difficult to calculate if your savings will last as you often don't know how long you’ll be off work. Income protection insurance covers you until you return to work.
- Job security. If job security is more of a worry than becoming ill and unable to work, then redundancy insurance could be considered. But exclusion clauses of 3-6 months mean that the likelihood of redundancy can’t be imminent. And you can’t volunteer for a redundancy package.
- Health and lifestyle. You may be concerned that a family history of ill health could affect you in the future. Income protection insurance can support you financially through any recovery.
- Employer benefits. Take a read through your employee benefits to see how much sick pay and redundancy you may be entitled to. Work out whether this is enough to live on while you’re unwell or looking for a new role.
- Budget constraints. All insurance comes at a cost. But also consider value for money. Prioritise spending your money where it adds most value to you and your family.
Why choose Vitality Income Protection insurance?
Looking for peace of mind if illness or injury stops you from working? Here’s why Vitality’s Income Protection Cover stands out:
Boosted Monthly Payouts: Get rewarded for looking after your health. If you’ve reached Silver Vitality status or above at the time of claim, you could receive up to 20% extra on your monthly benefit for the first six months.*
Guaranteed Benefit Amounts: Automatically secure up to £1,500 per month for approved claims. Want more cover? Verify your earnings within the first six months of your plan to guarantee up to £8,000 per month. **
Private Health Support When You Need It Most: If your claim relates to cancer, musculoskeletal, neurological, or mental health conditions, you may get access to Vitality’s private healthcare network. This includes:
- Physiotherapy
- Talking therapies (including CBT)
- Cancer support programmes
- Neurological rehabilitation
Rewards with the Vitality Programme: Enjoy a healthier lifestyle and get something back—right from the start. With Vitality, you can access weekly coffees, discounted spa breaks, gym memberships, and much more.
* Boosted payouts are subject to Vitality status at the time of claim.
** Guaranteed benefit amounts require submission of financial evidence within six months of plan start.
*** Health support services are available only to eligible claimants and must be approved by a claims assessor.
Sources:
1 Clark D (2025) ‘Number of economically inactive people due to long-term sickness in the UK 2000-2025’, Statista, 13 May 2025.
2 Stewart C (2024) ‘Causes of long-term absences from work in the UK in 2023’, Statista, 8 May 2024.
3 Office for National Statistics. Redundancies between April 2024 and April 2025. Published 10 June 2025.
4 Gov.uk. Statutory sick pay – what you’ll get.
5 Vitality. VitalityLife Claims and Shared Value Report 2025
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