What is income protection, and do I need it?
The plain-English version: what the policy does, how the waiting period works, and who tends to benefit most.
Last updated
In short
- Pays a monthly, usually tax-free income if illness or injury stops you working.
- Keeps paying until you’re back at work, the policy ends, or you retire.
- You choose a waiting period. Longer wait, cheaper premium.
The one-paragraph explanation
Income protection is an insurance policy that replaces part of your earnings if you can’t work because you’re ill or injured. It pays a regular monthly amount, typically 50% to 70% of your gross income, and keeps paying until you go back to work, reach the end of the policy term, or retire. Most payouts are tax-free.
It’s different from critical illness cover, which pays a single lump sum if you’re diagnosed with one of a specific list of conditions. Income protection isn’t tied to a list. If a doctor says you can’t do your job, it pays.
How the waiting period works
Every policy has a deferred period: the gap between stopping work and the first payment. You choose it when you take out the policy, usually 4, 8, 13, 26 or 52 weeks.
This is the main lever on price. If your employer pays full sick pay for six months, a 26-week deferred period means you’re only insuring the time after that, and the premium drops accordingly. If you’re self-employed with no sick pay at all, a 4-week wait makes more sense even though it costs more.
Who tends to need it
The honest answer is anyone whose bills would carry on if their pay stopped. That’s most working adults. It matters most for the self-employed and contractors, who have no employer sick pay; for employees whose company only offers Statutory Sick Pay; and for households where one salary covers most of the outgoings.
It matters less if your employer pays full salary for a year or more, or you have enough savings to cover a long stretch off work. A broker will ask about both before recommending anything.
What it doesn’t do
It doesn’t cover redundancy or being unable to find work. It won’t pay if you simply choose to stop working. And it usually won’t cover a condition you already had when you took out the policy unless the insurer agreed to include it.