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Do I Need Income Protection Insurance in the UK?

Written by, Marija Petkova

Updated December, 26, 2022

Keeping on top of our essential outgoings, such as rent or mortgage, can be a challenge. 

And when something like an injury or an illness prevents you from working for a longer period, things can only get worse.

This is where income protection insurance comes into play.

If you’re wondering “Do I need income protection insurance?”, the answer is: probably yes.

Here’s everything you need to know.

What Is Income Protection Insurance?

Income protection insurance in the UK, also known as permanent health insurance, is a long-term insurance policy that provides you with a regular income if you cannot work due to sickness or disability

This type of policy covers most illnesses that leave you unable to work and will pay you a portion of your income until you can return to work, retire, die, or reach the end of the policy term – whichever comes sooner.

Most salary protection insurance policies pay out between 50% and 65% of your income and can be claimed as many times as needed while the policy is active.

The payments from the insurance for income protection won’t start immediately when you fall ill. You’ll have to wait for the so-called “deferred” period to pass, which can last 4, 13, 26 weeks, and a year. 

This is because most employers have to cover your sick pay and you might be eligible for statutory sick pay. 

Note: The UK income protection insurance payments are not taxable. If you’re looking to take full advantage of the tax perks, here’s how to pay less taxes legally.

When Do You Need Income Protection Insurance?

Given that around 15 million Brits live with at least one chronic disease, getting income insurance in the UK is worth considering, regardless of your situation.

Most people in the UK are eligible for up to 28 weeks’ statutory sick pay –which is funded by the government – if they can’t work because of an illness or injury, but it’s only £96.35 a week.

If you don’t have an alternative income source or have little money saved – an average Brit has around £9,600 in savings –income insurance can significantly help.

Having income protection insurance is also a good idea if you:

  • Are self-employed.
  • Have limited sickness benefits.
  • Are single and have to pay for all household expenses.
  • Have dependents.

In addition to income insurance, getting key man insurance is also essential. 

Who Doesn’t Need Income Protection Insurance?

Although getting income protection insurance is rarely a bad investment, you might not need it if you:

  • Have enough savings to cover your expenses in the long-term.
  • Already have income protection benefits from your employer.
  • Have another type of illness insurance.
  • Have a mortgage that covers serious illness.
  • Can live from government benefits and sick pay.
  • Are eligible for early retirement.
  • Have family members that can support you financially. 

How Much Does Income Protection Insurance Cost?

The average cost of an income protection insurance policy is between £8 and £75 per month.

The range is wide because the cost of your income protection insurance depends on a long list of doctors, including the insurer, the amount of your income, the income percentage you want to cover, and your circumstances. 

The table below explains what affects your income protection insurance policy and how.

CriteriaEffect on the insurance policy cost
AgeThe older you are, the higher the cost
HealthBeing in good health means you will pay less
OccupationYou will pay more if you have a risky job
HobbiesYou will pay more if you are an adventurous type with dangerous hobbies
HabitsSmoking or drinking will raise your policy cost
Waiting periodThe longer the waiting period, the lower your premiums
Willingness to change jobsYou will pay less when taking out income protection insurance if you accept to get another job if your illness stops you from doing your basic job
Benefit amountBetter benefits mean higher premiums
Benefit payment periodLong-term income protection insurance policies are pricier than insurances with capped benefit terms

On top of that, your wage protection insurance cost can go lower or higher based on the type of premium you choose. 
For instance, a standard premium gives the insurers the right to increase it in the future and is usually cheaper. Insurance policies with guaranteed premiums have fixed amounts and are more expensive.

Income Protection Insurance Tips

Before you commit to an income protection insurance policy:

  • Double-check that you have provided the insurer with all the information about your medical history
  • Choose a suitable level of cover.
  • Carefully read the policy’s fine print and make sure you fully understand what it covers.
  • Regularly review your insurance coverage to ensure it can still cover you for what you need. 

You may be interested in: Is tenant liability insurance worth it? 

Frequently Asked Questions And Their Answers

What is the difference between life insurance and income protection?

Life insurance pays benefits to your beneficiaries after you pass away. Income protection insurance, on the other hand, will pay you if you’re unable to work due to an injury or illness after your sick pay ends (provided you have any).

How does income protection insurance work in the UK?

Income insurance will provide you with regular payments if you are unable to work due to an illness or disability. The payments are between 50%-70% of your earnings and it typically takes four weeks for them to start coming into your bank account

What does income protection actually cover?

Income protection insurance protects against long-term injury and sickness.

Do I need income protection insurance if I have another type of illness insurance?

If you have another type of illness insurance that can cover your expenses in case you fall ill, then you don’t have to get income protection insurance.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.