Life and Protection

Protection insurance is the name for policies that pay money to you, or to your family, if you die, fall seriously ill, or cannot work. The key types are life insurance, income protection and critical illness cover¹. Each works differently: life insurance pays a lump sum when you die, critical illness cover pays a lump sum when you are diagnosed with a serious illness, and income protection pays a regular monthly amount while you cannot work².

These policies are not savings products and they usually have no cash-in value. If you cancel, the cover simply stops and you get nothing back³. What you are buying is a promise that money arrives at the worst moments of your family's life, and the price of that promise depends mainly on your age, your health, how much cover you want and how long you want it to last.

This guide explains each type of protection insurance, what it costs, how to apply honestly, what can stop a payout, how to claim, and what protection exists if things go wrong.

The three main types of protection insurance

The Association of British Insurers groups protection insurance into three key types: life insurance (also called life assurance), income protection, and critical illness cover¹. They answer three different questions. Life insurance answers "how will my family cope financially if I die?". Income protection answers "how will I pay the bills if I am too ill to work?". Critical illness cover answers "how will I manage if I am diagnosed with something serious?".

Alongside these sit shorter-term products. Payment protection insurance, or PPI, was sold with loans, credit cards, mortgages and other types of credit, and protects your payments if you have an accident, become sick or lose your job⁸. Mortgage payment protection insurance comes in three types: unemployment only, accident and sickness only, and accident, sickness and unemployment combined². These usually provide short-term benefits, unlike income protection, which is designed to pay for much longer⁹.

Many policies now include added health benefits alongside the core cover, such as virtual GP services, vocational rehabilitation, mental health support and Employee Assistance Programmes¹. These extras can be used without making a claim, so they can be worth checking when comparing policies.

The three types are not substitutes for each other. Life insurance only pays out when you die, so it is not an alternative to cover that pays while you are alive². A person with a mortgage and dependants may have a use for all three; a single person with no dependants and good sick pay from work may have a use for none. The sections below explain each in turn.

Life insurance: level term, decreasing term and whole of life

Life insurance pays a single tax-free lump sum when you die, or when you are diagnosed with a terminal illness⁴. The payments are tax-free and can be used for any purpose¹⁰. The main decision is what shape of policy to buy, because the shape determines what the payout does over time.

Level term policies pay out the same amount if you die at any point during the term, and the premiums stay constant. Because the payout never falls, level term cover is more expensive than decreasing term cover¹¹. It suits people who want to leave a fixed sum, for example to cover a family's living costs or an interest-only mortgage.

Decreasing term means the amount paid out decreases over the life of the policy, usually to match a decreasing debt such as a repayment mortgage⁵. As the loan is paid down, the cover falls with it. This is the basis of most mortgage life insurance.

Increasing term cover rises over time, typically to keep pace with inflation, and whole of life cover lasts for the rest of your life rather than a fixed term⁵. Whole of life policies, including the over 50s plans that accept applicants without medical questions, are a different proposition from term cover: they are guaranteed to pay out eventually, and are priced accordingly³.

A variant worth knowing is family income benefit: a decreasing term policy that pays a regular, fixed monthly income to your beneficiaries until the policy's expiry date, rather than a lump sum¹⁰. Because the total it could pay falls over time, it is generally seen as the most affordable form of life insurance available¹².

Life insurance is not a legal requirement for a mortgage, but it changes what happens after a death. If the mortgage lender required life insurance, that policy may pay off the full amount of the loan. If there is no insurance, the property may have to be sold so the estate can repay what is owed¹³. Official guidance for home buyers lists life assurance and mortgage protection insurance among the ongoing costs to plan for alongside the repayments themselves¹⁴.

Critical illness cover pays a lump sum on diagnosis, not on death

Critical illness cover pays a lump-sum cash payment if you develop a critical illness like cancer, heart failure or stroke¹⁵. The money is paid to help you while you recover¹⁶. It is a single tax-free lump sum, paid on diagnosis of a named severe condition⁴.

The crucial word is "named". The policy pays out only if you are diagnosed with one of a list of illnesses set out in the policy details, and that list typically runs to 100 or more diseases or conditions, often with severity requirements attached³. All policies include cancer, heart attack and stroke¹⁶, and most insurers cover organ failure, multiple sclerosis, Alzheimer's disease, Parkinson's disease and traumatic head injury as standard⁴. But a diagnosis that does not meet the policy's definition, or that is not on its list, pays nothing.

This is what separates critical illness cover from income protection. Critical illness insurance gives you a lump sum regardless of whether the illness stops you from working; income protection pays only because you cannot work, and it keeps paying month after month⁶. The two are often confused, and they solve different problems: a lump sum can clear the mortgage or fund adaptations to a home, while a monthly income replaces a salary.

Critical illness cover can be added to a life insurance policy or bought separately¹². Be aware that a combined policy which pays out for critical illness may reduce the final life insurance payout when you later die³. Some policies also provide cover for children up to the age of 18, or up to 21 if they are in full-time education¹⁷.

Income protection: 50% to 70% of your earnings while you cannot work

Income protection protects your income if you fall ill and cannot work. It pays a percentage of your income each month¹⁵. Typically it covers around 50% to 70% of your salary⁵; Macmillan puts the usual range at 50% to 75% of your gross monthly work salary¹⁸. The payout is a regular tax-free monthly income, paid because of inability to work due to any illness or injury⁴.

Policies do not replace all of your pre-disability income. The amount paid on a claim is limited to between 50% and 75% of your earnings before you were unable to work, and state benefits you might be able to claim, such as Statutory Sick Pay, Universal Credit or Employment Support Allowance, are also taken into account⁹. Insurers price cover on the basis that a claimant is not better off off work than in work.

Income protection is not the same as loan protection or payment protection insurance, which usually only provide short-term benefits⁹. A full income protection policy can pay until you return to work, reach retirement, or the policy ends, whereas short-term accident, sickness and unemployment cover typically pays for a much shorter period.

It also tends to be more expensive than mortgage payment protection insurance². Prices vary depending on your job, health and the level of cover, and it is worth checking what is included, because cheaper policies may offer a lower level of protection⁵. Whether a policy covers pre-existing conditions varies: sometimes it does, but usually with conditions and higher premiums involved⁶.

For many working people, income protection is the cover they are least likely to hold and most likely to need. If you are signed off work, official guidance suggests checking whether you have mortgage protection insurance to cover your payments¹⁹, and the state offers only limited support, covered in Statutory Sick Pay, ESA and what you get if you cannot work.

Deferred periods and how they change the price of income protection

Every income protection policy has a deferred period: the amount of time you have to have been off work before the policy will start paying you benefit, agreed when you took out the policy⁹. It is a waiting period, and it can range from a few weeks to several months after you stop working⁵. Typically the default deferred period is 13 or 26 weeks, but it can be as short as four weeks⁶. The deferral period can generally range from one to 12 months after you were taken ill, with longer waiting periods often costing less⁶.

A timeline of an income protection claim, from the day work stops to the first payment

The deferred period is one of the main levers on the price. A policy that starts paying after four weeks has to charge more than one that starts after six months, because far more claims fall within the shorter window. Longer waiting periods reduce the premium, while shorter periods increase it, and a longer deferred period is therefore one of the standard ways in which the cost of cover is kept down. The trade-off is the gap between stopping work and the first payment, which has to be bridged from savings, sick pay or a partner's income.

The right deferred period therefore depends on what would actually happen in the first weeks off work. Someone whose employer pays full salary for six months does not need a four-week deferred period. Someone who is self-employed with no sick pay may find a long deferral impossible to bridge, and the shorter, more expensive policy may be the only realistic option. The dedicated guide to deferred periods goes further into the trade-offs.

What protection insurance costs and what drives the premium

Insurers consider a variety of factors when calculating the premium for a policy. It can vary depending on the insurer, the individual circumstances of the policyholder and the particular risks the insurer is being asked to cover²¹. In practice, for protection insurance the main drivers are your age, your health and medical history, whether you smoke or vape, your occupation, the amount of cover, and the length of the term.

The price is also affected by tax. Insurance Premium Tax (IPT) is charged on insurance premiums and covers most general insurance, and it is usually included in the price you pay for insurance²². The level of the tax is set by Parliament²³, so it can change; when it rises, premiums tend to follow.

Two structural choices move the price significantly. The first is the deferred period on income protection, covered above. The second is the type of policy itself: income protection tends to be more expensive than mortgage payment protection insurance because it pays out for longer², and level term life insurance costs more than decreasing term because the payout never falls¹¹.

Health is where the price moves most for individuals. Insurers may charge higher premiums, add exclusions, or in some cases refuse cover, based on your medical history⁴. Someone with well controlled Type 2 diabetes will often be able to get life insurance, though typically with higher premiums and sometimes with exclusions²⁴. The rules on what you must disclose, and what happens if you do not, are covered in the next two sections.

Applying: health questions, GP checks and honest disclosure

When you apply for an individually underwritten policy, the insurer will ask you questions about your health and ask you to declare any conditions you have at that time²⁵. Applicants are normally asked about their current health, previous health problems and any major health problems in the family²⁶.

For some applicants, the insurer will want more than your answers. Insurance companies may request medical information from your GP or hospital doctor to better understand your condition and accurately price the additional risk²⁶. Insurers may also require a medical examination, and often send a specialist nurse to your home for this²⁷.

You have rights at this stage. If a GP or hospital doctor report is requested, you will be asked for your fully informed consent, and there may be a question about whether you want to see a copy of the report before it is sent. You are entitled to talk with your GP or hospital doctor before medical reports are sent to the insurance company, and you are entitled to know what information they have provided to the insurance company²⁶.

The single most important rule is honesty. Answering all questions truthfully will prevent any chances of your policy becoming void²⁶. You must tell the truth in your application about any pre-existing conditions; if the insurer finds out later that you were not entirely honest, it could void your entire policy⁴. The consequences of getting this wrong are severe and permanent, because a void policy pays nothing at all. The guides to applying and underwriting and the duty of disclosure cover this in depth.

Getting cover with cancer, diabetes or a smoking history

A pre-existing condition does not automatically bar you from cover, but it changes the process and often the price. When applying for a new life insurance policy with diabetes, you will need to provide full details of when you were first diagnosed, your medical history and the specifics of your treatment and medication²⁴. The insurer will want to know whether you have type 1 or type 2 diabetes, or a rarer form; your HbA1c average blood glucose test results; any hospitalisations or significant developments; changes to your treatment; and any complications you have experienced²⁸.

People with Type 2 diabetes, particularly if it is well controlled, will often be able to get cover, though typically with higher premiums and sometimes with exclusions. People with Type 1 diabetes can also get cover, but the policy may come with extra restrictions²⁷.

Cancer works differently at different stages. Insurers cannot cover certainties, so they are legally entitled to refuse cover where the medical prognosis is that you will die during the policy term²⁷. People who have recovered from cancer may be asked to provide detailed medical information and attend a medical examination before taking out a new policy, with higher premiums and restrictions on the maximum sum insured²⁷. There are also specialist, non-medically screened policies that offer guaranteed cover for anyone, but these are often more expensive, with limited term length or total sum insured²⁷.

Crucially, a diagnosis after you have cover does not reopen the deal. Once a policy is in place, the premiums cannot be increased after a cancer diagnosis, and the policy cannot be cancelled, as long as you made full and honest disclosures on your application and continue paying the premiums²⁷. The same applies to diabetes: if you already have life insurance and are subsequently diagnosed, you do not have to tell your insurer or pay higher premiums²⁷. Life insurance usually pays out only when you die, so a diagnosis alone does not trigger a payout²⁷.

Smoking and vaping must be declared. You must tell your life insurer if you smoke or vape using nicotine products, even if only occasionally, and insurers weight premiums for people who use vapes, gum and patches the same as for those who smoke cigarettes²⁷. If you lie about your smoking and get a cheaper premium as a result, you will have committed fraud, and your policy may be declared void with any payout refused²⁷. Ex-smokers are treated as non-smokers only after a qualifying period, which varies by insurer: some require you to have quit for a year, others for two, five or even 10 years. A few insurers will reduce premiums on a signed declaration that you have given up, but most will not discount an existing policy²⁷.

Common exclusions and when a policy will not pay out

Every protection policy contains exclusions: situations and events that are not covered¹¹. Reading them before you buy, rather than after you need to claim, is one of the few things that reliably protects a payout.

For life insurance, the common exclusions are suicide within the first one or two years of the policy, illegal or criminal activities, dangerous activities, death outside the coverage area, policy lapse due to non-payment, and misrepresentation or fraud¹¹. Death by suicide or self-harm is mostly covered by life insurance policies, except in the first year or two after taking out the policy¹⁰.

For critical illness cover, the conditions not covered vary between policies, but the most common exclusions are linked to aviation, criminal acts, drug abuse, failure to follow medical advice, hazardous sports and pastimes, HIV/AIDS, living abroad, self-inflicted injury, and war and civil commotion¹⁷. The illness itself must also meet the policy's definitions: a payout requires diagnosis of one of the listed conditions, during the term of the policy¹⁷.

For income protection, the policy pays only if you cannot work, and only after the deferred period, and the amount is reduced by state benefits and similar policies⁹. Cheaper policies may offer a lower level of protection, so the exclusions and definitions matter as much as the headline price⁵.

The exclusion that catches most people out is non-payment. If the policy lapses due to non-payment of premiums, coverage stops, and no benefits will be paid upon the policyholder's death¹⁰. The guide to missed premiums and lapsed cover explains what can be done, and when income protection will not pay out lists the claim-stage pitfalls.

Making a claim and what happens if you stop paying

A claim starts with the insured event: a death, a diagnosis, or time off work. The claim form and evidence go to the insurer, medical reports may be requested with your consent, and the insurer decides the claim against the policy's definitions and exclusions. If you are unhappy with the decision, you complain to the insurer first, and if it remains unresolved, the Financial Ombudsman Service can look at it.

The stages of a protection insurance claim, from the event to the final decision

Complaints about protection insurance are not rare. In the first quarter of 2026/27, 175 complaints about critical illness cover were opened, of which 7% were upheld in the consumer's favour²⁹. The ombudsman publishes this data so consumers can see how insurers handle complaints, and it handles individual disputes across life, income protection and critical illness insurance¹⁵.

The Financial Ombudsman Service is free to use. It can look at a complaint about a protection policy, including disputes about medical screening at application, the application of exclusions, and claim decisions²⁵. Before going to the ombudsman, you must give the insurer the chance to resolve the complaint first.

Stopping payment is the other side of claiming. If premiums stop, the policy lapses and the cover ends; no benefits will be paid¹⁰. If you cancel life insurance, it simply stops and you do not get any money back³. If you are struggling to pay because of illness or job loss, the position is different: check whether you have mortgage protection insurance to cover your payments¹⁹, and if you are in Scotland and cannot pay debts, a Time to Pay arrangement can give you protection, though that protection can stop if you do not keep to the agreed terms³⁰.

Tax, trusts and FSCS protection for your payout

Life insurance payouts are normally tax-free, and can be used for any purpose¹⁰. Income protection payouts are a regular tax-free monthly income⁴, and critical illness cover pays a single tax-free lump sum⁴. The guides to tax on protection payouts and whether a life insurance payout is subject to inheritance tax cover the details.

One structural step matters for life insurance: writing the policy in trust. All life insurance policies can be written in trust, including family income benefit. This is a legal arrangement, usually free of charge, that keeps the payout outside the estate and avoids probate¹². For a policy not in trust, the payout forms part of the estate and can be delayed and, in larger estates, taxed. The guide to writing life insurance in trust explains how it works.

If the insurer itself fails, the Financial Services Compensation Scheme steps in. For compulsory insurance such as employers' liability, FSCS pays 100% of the claim; for property claims it pays 90%⁷. For home, pet, travel and payment protection insurance and other general insurances, the protection is 90% of your claim³¹. Whole of life assurance claims are protected at 100%³². Credit insurance is not eligible for FSCS protection³². FSCS protection is automatic: you do not need to apply for it in advance.

FSCS also protects deposits up to £120,000 per person, per authorised banking group³³, and up to £120,000 in total for eligible beneficiaries across accounts held in certain types of trust³⁴. That matters if a payout is held in a bank account: a large life insurance lump sum deposited with one bank counts towards that £120,000 limit, so spreading it across banking groups with separate authorisations can keep it within protection. The guide to life insurance and FSCS covers the insurance side.

Who provides protection insurance in the UK

Protection insurance in the UK is provided by life insurers, many of them long-established, alongside friendly societies and mutual insurers. Phoenix Life, for example, publishes product guides for term assurance, describing it as protection insurance paid to your family or financial dependents if you die during the term¹⁷. Its guides also cover family income benefit, which pays regular, tax-free income to dependants with a guaranteed death benefit as the minimum amount to be paid, and critical illness cover, which applies to specific illnesses and only pays out if you are diagnosed during the term of your policy¹⁷.

The market includes insurers known mainly for life cover, insurers that sell protection alongside pensions and investments, and brands that distribute policies under their own name. A full list of firms with their FCA authorisations is on the insurers directory. What matters when choosing is not the brand but the terms: the definitions of illness, the exclusions, the deferred period and the price.

You can buy protection insurance direct from an insurer, through a broker, or through a financial adviser. MoneyHelper, the free government-backed service, explains when using an insurance broker can help, and notes that with a regulated broker you are protected by the Financial Services Compensation Scheme³⁵. The guide to buying protection insurance compares the routes.

Multiple policies, benefits and moving abroad

Several practical questions come up repeatedly, and the answers are straightforward.

Can you hold more than one policy? Yes. It is perfectly legal and fairly common for people to have more than one life insurance policy at the same time, with the same company or with different providers, and you can have a joint life insurance policy and a single life insurance policy at the same time³⁶. People do this for different purposes, or to increase cover as circumstances change¹⁰. You must tell each insurer about existing life insurance you hold¹¹.

Does life insurance cover suicide? Mostly, but not immediately. Death by suicide or self-harm is mostly covered by life insurance policies, except in the first year or two after taking out the policy, and policies typically have clauses that exclude these claims in the first one or two years¹⁰.

Do you get money back if you cancel or never claim? No. If you cancel life insurance, it simply stops and you do not get any money back³.

Does income protection interact with state benefits? In both directions. Income protection policies do not replace all your pre-disability income; they usually provide a proportion of it, minus state benefits and any income from similar policies⁹. Meanwhile, Universal Credit payments are reduced by the amount of certain other payments you receive, including Incapacity Benefit, Industrial Injuries Disablement Benefit, New Style Employment and Support Allowance, State Pension and others³⁷. Transitional Protection payments also fall as Universal Credit entitlement increases³⁸. The guide to whether income protection affects benefits works through the combinations.

What about moving or travelling abroad? Check the policy first. Critical illness exclusions commonly include living abroad¹⁷, and foreign travel insurance is not intended to cover you if you live abroad permanently³⁹. If you move overseas, official guidance explains that paying National Insurance while abroad can protect your State Pension and entitlement to other benefits and allowances³⁹. The money abroad guide covers the wider picture.

What is family income benefit? A decreasing term life insurance policy that pays a regular, fixed monthly income to your beneficiaries until the policy's expiry date, rather than a lump sum¹⁰. It is available on both an individual and joint basis, with a joint policy paying one set of income payments usually after the first policyholder dies during the term¹², and it is generally seen as the most affordable form of life insurance available¹².