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What is income protection?

✅ Fact checked by Tembo protection specialist

Jenni Hill
Last Updated 4 July 2024

If you were unable to work following an illness or injury, would you be able to pay your bills? An emergency fund could tide you over for a little while, but it might not last if you’re out of work for several months or more. While an income protection policy could protect you for up to two years. But what is income protection, and how does income protection work? Let’s take a look.

In this guide

What is income protection insurance?

Income protection insurance is a type of insurance policy that will provide you with an income if you’re unable to work due to an illness or injury. You’ll receive regular payments from your insurance provider, which you can put towards your mortgage or rent, household bills and other expenses.

How does income protection work?

Income protection works by providing you with a portion of your income while you’re unable to work. Your payments will usually be worth between 50% to 65% of what you’d usually earn but can be more than this. The exact amount will depend on your circumstances, your chosen insurer and the agreed policy terms.  

Insurers cover most serious illnesses that can affect your ability to work, such as cancer, heart disease or stroke. If you’ve been hurt in an accident, broken bones and other injuries are usually covered too. But before taking out an income protection policy, it’s important that you read the terms and conditions so you know exactly what’s covered and what’s not.

Your monthly payments are waived if you are claiming on the policy and will continue again once you have returned to work. Some insurers will cover you until you retire, as long as you’re medically unable to work. If you pass away, the monthly payments will stop.

Once you have an income protection policy in place, you can make multiple claims throughout your policy term. This differs from some other types of insurance policy which end as soon as you’ve made a claim.

Is mental health covered under income protection?

Yes, mental health is often covered under income protection. Not all insurers will cover you for mental health however, particularly if you’ve struggled with this in the past.

If you want a policy that covers you for stress, depression and other mental health issues, it’s a good idea to speak to an insurance broker like one of our team instead of approaching an insurance provider directly. An expert insurance advisor will compare policies from across the industry until they find the most suitable cover for you.

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How long does income protection pay out for?

How long your policy will payout is known as a ‘payment period’, and the duration depends on the type of policy you choose. Short-term income protection could pay you every month for up to 1, 2 or 5 years per claim or until you go back to work. While long-term income protection could pay out until you return to work or reach retirement. 

Long-term policies can offer you peace of mind that you’ll be financially supported even if you’re never able to work again, but they can be more expensive than short-term policies.

If you’re wondering whether to choose a short-term or long-term income protection plan, our team of insurance and protection advisors can help you weigh up your options.

Does income protection pay a lump sum?

No, an income protection policy doesn’t pay a lump sum. Instead, it’ll pay out in monthly tax-free instalments. These monthly payments should make it easier to keep up with your financial commitments, such as your rent or mortgage, utility bills, childcare costs, transport costs, debts, and lifestyle expenses. 

If you’d like a lump sum payout, take a look at critical illness cover. You can have critical illness cover and income protection at the same time, but you’ll need to work out whether this level of cover is affordable. Talk to our team of insurance and protection experrts for specialist advice. 

Is it worth getting income protection?

It can be worth getting income protection, especially if you believe that an injury or illness would make it hard or impossible for you to work. Income protection can be particularly worthwhile if you don’t have enough money in savings to cover your costs while you’re out of work.

It can be hard to save an emergency fund big enough to cover your living expenses for an extended period of time. In fact, a third of Brits are unable to save £100 a month and one in ten don’t have any savings at all.

To learn more, take a look at our guide: Is income protection worth it? Or talk to our in-house team of protection and insurance specialists. We’ll help you work out whether income protection is right for you, and help you find the best policy for your and your family. 

What is the alternative to income protection?

There are a few alternatives to income protection. These include:


You could use savings to cover your living expenses while you’re out of work. But even if you have enough to last you a year or two, you still might struggle financially if you were unable to work for a much longer period of time. 

If you don’t have much savings, work out how much you can afford to save each month and how long it’ll take you to save a year’s salary. If you earn £30,000 a year and you’re able to save £100 a month, for example, it could take you 25 years to save one year’s income. 

Meanwhile, an income protection policy could cost you as little as £10 a month* and provide you with cover straight away. If you needed to make a claim just a few months into your policy, you’d very quickly start receiving between 50% to 65% of your income from your insurance provider, despite spending very little on your insurance. 

Statutory sick pay and workplace sick pay schemes 

If you’re employed and your GP signs you off work with stress, you’ll receive statutory sick pay (SSP) from your employer for up to 28 weeks. Statutory sick pay is £109.40 per week, but employers don’t have to pay it for the first 3 qualifying days of your absence. 

If statutory sick pay isn’t enough, you need more than 28 weeks off work, or you’re self-employed and not entitled to SSP at all, income protection could help you keep on top of your bills and avoid financial difficulties while you get back to full health.


Check your work's sickness policy

Some employers offer more generous sick pay packages. Your contract or employee handbook should explain what you’re entitled to.

Benefits and financial support

If you’re unable to work, you may be entitled to benefits and financial support from the government. These include Personal Independence Payments (PIP), Universal Credit, and Employment and Support Allowance (ESA). 

Critical illness cover

Some people choose critical illness cover instead of income protection, but it’s unlikely to provide you with enough money to cover your living costs for an extended period of time. 

Unlike income protection which pays a monthly income, a critical illness policy will pay you a lump sum if you’re diagnosed with a serious illness listed in your policy. Some insurers will cover you for hundreds of different conditions, while others offer a much more limited selection. 

The exact payout can vary depending on the policy, but according to ABI data, the average amount paid by insurers for critical illness claims in 2022 was £66,296. 

Does income protection pay out on death?

No, income protection doesn’t typically pay out on death. Instead, it pays out for injury and illnesses that stop you from working. Some policies do include a ‘death benefit’ which will offer your loved ones a lump sum payment if you were to pass away during the policy term.

LV, for example, provides a death benefit of £5,000 if you die within four years of the policy start date or £10,000 if you die four or more years after the policy begins.

If you want a policy that pays out on illness, injury or death, you may be well suited to income protection and life insurance, rather than an income protection policy with a death benefit included. To work out which cover is right for you, talk to our team today. 

What is better life insurance or income protection?

Whether life insurance or income protection is better depends on your personal circumstances and needs. While income protection pays out monthly while you’re unable to work, life insurance pays out a lump sum after you pass away.

How do I choose the right policy for me?

If you’re unable to work due to illness or injury, the last thing you need is to be worrying about money. Yet choosing the right insurance can be overwhelming. Get in touch with our team of protection specialists today and we’ll compare hundreds of income protection, critical illness, mortgage protection and life insurance policies until we find the right cover for you.

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*Prices based on the following criteria, accurate as of 08/06/2023: 25 year old male client- non-smoker- administrator - 3 month deferment period- £1,500 to be paid out each month for a maximum of two years per individual claim- covering him up to the age of 65- £9.85 pm. Prices quoted may vary depending on your own individual circumstances including age, medical history, the sum assured, length of policy - and other variables.