Income protection
Everything you need to know
Have you ever thought about how you’d manage financially if illness or injury prevented you from working? How would you cover your monthly expenses or support your family? It’s not something we like to think about, is it?
Income Protection insurance offers a practical and tax-efficient financial safety net, providing peace of mind and security when life takes an unexpected turn.
In this guide, we’ll walk you through how income protection works, what to look for in a policy, and how to choose the right level of cover for your needs.
How does Income Protection work?
Income protection insurance is designed to replace a portion of your income if you're unable to work due to illness or injury. Here’s the gist:
Choose your level of cover: You select a policy that covers a percentage of your income, up to a maximum of 75% of your pre-tax earnings, including any State Illness benefit you receive.
Make a claim: If you’re unable to work due to illness or injury, you submit a claim to your insurer.
Deferred (waiting) period: After your selected waiting (or deferred) period has passed, the policy begins to pay out your insured benefit.
Receive ongoing payments: Benefits continue until you can return to work, reach the end of your policy term (usually your retirement age), or in the event of death.
Proportional benefits: Some insurers offer partial payments if you are able to go back to work on a part-time or reduced hours basis.
Premium waiver: While you’re receiving income protection benefits, you generally don’t have to pay premiums.
Multiple claims are allowed
One of the advantages of income protection is that you can make multiple claims, including for a recurrence of the same condition. In many cases, if the same illness reoccurs after you’ve returned to work, you won’t need to wait through another waiting (deferred) period, although this can vary by provider.
Your premiums and tax
If you are a PAYE worker, you can claim tax relief on your full income protection premium at your marginal rate of tax (that’s either 20% or 40%, depending on your income). This makes income protection one of the most tax-efficient forms of personal insurance.
Self-employed and sole traders can charge the premiums against their annual income tax bill,
Company directors can fund income protection premiums from their company, thus charging it as a business expense against corporation tax.
Choosing the best Income Protection policy
Waiting (Deferred) Period
The deferred period is the time between stopping work and when your policy starts to pay out.
Selecting the right waiting period helps balance the cost of your premium with how much you’re covered for.
Things to consider include:
Employer sick pay: If your employer pays you sick leave, then match your waiting (deferred) period with how long you receive sick pay for so that you have a continuous source of income..
Personal savings: If you can rely on some of your own savings for a period, you could opt for a longer deferred period,which would normally reduce how much you pay (the premium).
Comparing options: Waiting (deferred) periods can range from four weeks to a year. Sometimes, the price difference between longer periods is small, so it’s worth comparing.
As an example, someone with six months of employer-provided sick pay would usually choose a six month 26-week waiting/deferred period.
Determining your Income Protection payout amount
Selecting the right amount of cover ensures you’re properly protected without paying more for unnecessary benefits.
Maximum benefits are limited
The maximum cover is 75% of your pre-tax income, inclusive of any State Illness Benefit. This cap is in place so that you have financial incentive to return to work when you’re able.
How to calculate your cover amount
List your essential expenses (e.g. rent or mortgage, bills, groceries).
Add any additional financial commitments (e.g. loan repayments).
Subtract other income sources (e.g. your partner’s income, rental income).
The result is a practical starting point for your cover level.
Balancing cost and protection
While opting for the maximum 75% cover may feel reassuring, a higher cover means you’ll pay higher premiums. Aim for a balance between strong protection and affordability.
Getting the right policy at the right price means comparing your options.
What determines the cost?
Your age
Your health and medical history
Your occupation
Your lifestyle (e.g. smoking, alcohol consumption, hazardous activities)
Amount of cover you need to insure yourself for
The waiting (deferred) period you choose.
How long you want the policy to last (the term).
How we can help
We help you identify the level of cover you need
We’ll work with our trusted parters to get multiple quotes.
We’ll compare the details of the quotes, not just the price, looking closely at any exclusions or limitations.
We’ll check for additional free benefits that may vary between the different insurer’s quotes.