How income protection insurance works

Income protection insurance pays you a regular monthly income if illness or injury stops you working. It is one of the three main types of protection insurance sold in the UK, alongside life insurance and critical illness cover¹, and it is also known as permanent health insurance². Unlike a lump sum policy, it is designed to keep money arriving month after month for as long as you are unable to work, which is why it is often described as long-term income protection.

The cover is deliberately partial. Income protection policies do not replace all your pre-disability income: they usually provide a proportion of your income, minus state benefits and any income from similar policies³. Most policies pay around 50% to 70% of your salary⁴, and payments typically continue until you are able to return to work or the policy ends⁴. The money is yours to spend on whatever you wish, including your mortgage⁵.

Income protection replaces part of your salary, not all of it

The defining feature of income protection is that it replaces earnings, not a life. It pays out if you are unable to work due to illness or injury⁵, and because it is built around your income, the amount you can insure depends on what you earn. The Financial Ombudsman, which handles disputes between consumers and insurers, describes the position plainly:

The reason for the proportion is to keep an incentive to return to work and to avoid paying out more than you were earning. Insurers also reduce the benefit by state benefits and payouts from other similar policies, so the total from all sources stays below your normal earnings³.

Income protection is not the same thing as loan protection or payment protection insurance (PPI), which usually only provides short term benefits³. PPI protects specific repayments, such as on a loan or credit card, if you have an accident, become sick or become unemployed⁷. Income protection is broader and longer lasting: it pays a monthly amount you can use for anything, from the mortgage to food bills⁵.

A small number of policies have an investment element, where you get a lump sum when the policy expires, called a surrender value³. These are unusual in the modern market, and most standard policies have no cash-in value at all.

How much it pays: usually 50% to 70% of your earnings

Most income protection pays a percentage of what you earned before you became ill. Citizens Advice says you can expect about a half to two-thirds of your earnings before tax from your normal job², and Which? puts the typical range at around 50% to 70% of your salary⁴. Macmillan, the cancer charity, gives a slightly wider band of 50% to 75% of your gross monthly work salary⁸, and one insurer's guidance says the payout is restricted to up to 65% of gross annual income depending on the provider⁹. The documents differ on the exact ceiling, but they agree on the shape: roughly half to two-thirds of what you earned, not the whole amount.

Because the benefit is tax free when you pay the premiums yourself², the take-home effect is larger than the headline percentage suggests. A 60% benefit of gross pay can land close to your normal net income once tax and National Insurance are taken into account.

Some insurers use tiered cover: they may pay a higher percentage on the first part of your salary, for example the initial £50,000, and a lower percentage on the remainder⁵. This means two policies quoting the same percentage can pay different amounts, so the basis of the calculation matters as much as the number.

The benefit is normally based on your earnings at the time you took out the policy or became ill, whichever the policy specifies. For employees this is usually straightforward. For the self-employed, insurers typically look at average taxable profits over recent years, which is worth bearing in mind if your income fluctuates.

The deferred period: how long you wait before payments start

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 policy³. Until the deferred period has passed, nothing is paid, so you need to be able to get through it on sick pay, savings or both.

The length varies widely. Citizens Advice says you usually have to wait a minimum of four weeks, but payments can start up to two years after you stop work². Which? describes a range from a few weeks to several months⁴, and other guidance puts the typical deferral period at 13 or 26 weeks, though it can be as short as four weeks⁵. One common set of choices runs from four weeks to 26 weeks, depending on your sick pay arrangements¹⁰.

The deferred period is one of the biggest levers on price. If you can afford to rely on savings or employer sick pay for a period, opting for a longer wait before payments begin can reduce premiums⁴. The trade-off is simple: a longer deferred period means a cheaper policy but a longer stretch with no insurance money arriving, so it suits people with decent sick pay or savings, and suits people living hand to mouth much less well.

Choosing the deferred period well is where the fit with employer sick pay matters most. If your employer pays full salary for three months, a 13-week deferred period means the insurance picks up roughly where the sick pay stops. A four-week deferred period on top of generous sick pay largely duplicates what you already have.

Own occupation or any occupation: how insurers decide you can't work

Whether a claim succeeds depends on the policy's definition of incapacity. The Financial Ombudsman sets out four main categories for disability in income protection insurance: own occupation, any suited occupation, any occupation whatsoever, and total disability³. These range from the strongest to the weakest from the policyholder's point of view.

Some policies will only pay out if you cannot do your specific job, while others may consider whether you could do a different type of work⁴. An own occupation policy pays if you cannot do your own job, full stop. A policy on a suited occupation basis pays only if you cannot do your own job or a similar one you are qualified or have the experience for⁸. An any occupation policy stops paying if you could do some work, even work far removed from what you used to do.

The definition is agreed when you take out the policy, and it is one of the main reasons premiums differ between quotes that look otherwise similar. As with any claim, you will need to meet the insurer's definition of being unable to work, which may involve medical evidence⁴. You are medically assessed when you take out the policy, and you will know in advance what you will and will not be covered for⁵.

The practical point is to check the definition before buying, not at claim time. The site's guide to incapacity definitions explains each category in detail, and the comparison of short-term and long-term income protection shows how definitions tend to differ between the two types of cover.

How long payments last and when they stop

This is where income protection differs most sharply from shorter-term cover. Claims are typically paid until the person returns to work, retires or the policy ends⁶. Which? makes the same point: once payments begin, they will usually continue until you are able to return to work, or until the policy ends⁴. Other guidance describes the payout running until you can work again, retire, die or the end of the policy term¹³.

Not every policy runs that long. Cheaper short-term policies may only pay for one or two years¹⁴, and options exist for maximum claim periods of one, two or five years, which can make cover more affordable⁶. These limited-payment plans trade a lower premium for a cap on each claim.

The difference matters most in a long illness. A policy that pays for two years will cover a broken leg or a bout of serious illness followed by recovery, but it will stop long before a condition that keeps you off work for a decade. Full-term cover costs more precisely because the insurer's liability is open-ended.

Some policies pay out for a longer period than mortgage insurance, for example until you can go back to work or reach retirement¹⁵, which is why income protection tends to be more expensive than mortgage payment protection insurance¹⁵. The narrow guide to how long claims pay covers the detail, and the page on when income protection will not pay out lists the situations where a claim can fail.

What income protection costs and what pushes premiums up

The premium is driven by the insurer's estimate of how likely you are to claim and for how long. Citizens Advice lists the main factors: your age, your health, your job, hobbies and lifestyle, the waiting period, and whether you might be prepared to do other kinds of work than your own². An insurer's own guidance adds the type of policy you secure to that list⁹.

In practice this means:

• Age: premiums rise with age, because long-term illness becomes more likely.
• Health and lifestyle: smoking, heavy drinking and dangerous hobbies all push the cost up, and you must give your insurer full details of your medical history when you apply².
• Occupation: manual and higher-risk jobs cost more to insure than office work.
• Deferred period: the longer you wait, the cheaper the monthly premium⁸.
• Definition of incapacity: own occupation cover costs more than any occupation cover.
• Claim length: full-term cover costs more than a plan capped at one, two or five years⁶.

Income protection is medically underwritten when taken out, which means the insurer assesses your health at the start rather than waiting until you claim⁶. This is what lets you know in advance what is and is not covered⁵. Pre-existing conditions are not always excluded: sometimes they are covered, but usually with conditions and higher premiums⁵.

One cost that does not apply is insurance premium tax. There is no IPT on life insurance and income protection insurance¹⁶, unlike general insurance such as car cover, where tax is added to the premium.

Compared with its shorter-term rivals, income protection is generally more costly than mortgage payment protection insurance⁵, because it pays out for longer and on a wider range of conditions. The guide to reducing the cost sets out the trade-offs available.

Guaranteed, reviewable or age-costed premiums

How the premium behaves over the years is a separate choice from how much it starts at. There are three main structures, described in Macmillan's guidance on protection insurance and cancer⁸:

• Guaranteed premiums are fixed for the whole term. You know what you will pay each month until the policy ends, but the starting premium is usually higher.
• Reviewable premiums are lower initially, but the insurer reviews them on a regular basis, usually every five years, and may increase them⁸. Reviews reflect the insurer's claims experience, not just your own health.
• Age-costed premiums start low but get higher as you get older⁸. The premium rises at set birthdays, which can make cover affordable early on and expensive later.

The same choice appears across protection insurance. With reviewable premiums, while they may cost less initially, the insurer will review them on a regular basis and may charge more over time¹⁷. The trade-off is predictability against starting cost: guaranteed premiums suit people budgeting over decades, while reviewable or age-costed premiums suit people who need the entry price low and accept the risk of rises.

Because income protection is long-term cover, often running to retirement age, the cumulative effect of premium increases matters more than it does on a short policy. A reviewable premium that doubles over twenty years can cost more in total than a guaranteed one that never moved, though neither outcome is guaranteed in either direction.

How income protection fits with sick pay and state benefits

Income protection sits on top of other support, and the two need to fit together rather than overlap. The first layer is employer sick pay. Statutory sick pay is treated as earned income, so you have to pay both income tax and Class 1 National Insurance contributions on it¹⁸, and you may be able to claim it for up to 28 weeks after you stop work². Some employers pay considerably more than the statutory minimum for a period; that period is a natural anchor for the deferred period on a policy.

The second layer is state benefits. Universal Credit counts Statutory Sick Pay as earnings¹⁹, and it also counts certain insurance income: Mortgage Payment Protection Insurance payouts are treated as income where you qualify for support for mortgage interest²⁰. Income Support is paid to certain people who are not expected to look for work, including carers and certain lone parents²¹. Some benefits are unaffected: you can still receive Personal Independence Payment if you are working or receiving Statutory Sick Pay²².

The interaction can run the other way too. If you have an income protection plan, also called permanent health insurance, income from your pension could reduce payments from the plan, so it is worth checking with your HR or pensions department²². And because insurers reduce their benefit by state benefits and similar policies³, a payout that looks generous on paper can be smaller once other support is counted.

The practical approach is to map out, before buying, what you would receive in each of the first few months of a serious illness: employer sick pay, then benefits, then the policy. The guides to sick pay and state support and whether you need cover if you have sick pay or savings work through this, and the page on how income protection affects benefits covers the interaction in detail.

What it does not cover: redundancy, exclusions and cash value

Basic income protection policies typically do not cover redundancy⁵. The cover is for illness and injury that stop you working, not for losing your job. If unemployment cover matters, it comes from a different product: mortgage payment protection insurance is designed for mortgage-related needs during illness, injury and, unlike typical basic income protection policies, redundancy⁵. Redundancy insurance of that kind has its own rules, including how payouts are treated if you later claim benefits⁶.

Beyond redundancy, the main exclusions to check are:

• Pre-existing conditions: sometimes covered, but usually with conditions and higher premiums⁵.
• Undisclosed medical history: you must give your insurer full details of you and your family's medical history, plus dangerous hobbies or a lifestyle that includes smoking, heavy drinking or drug taking². Leaving things out can invalidate a claim.
• Conditions excluded by name: the policy document lists any specific exclusions, and rules require it to be written in easy-to-read plain English so you can understand what is covered².

Living abroad can also affect cover. If you move overseas, voluntary National Insurance contributions do not cover your health insurance in the country where you live²³, and policies commonly restrict where you can reside while claiming, so anyone planning to move abroad should check the terms first.

On cash value, a standard income protection policy has none. Only policies with an investment element pay a surrender value when the policy expires³, and these are rare. If you stop paying your premiums, your cover stops, your policy ends, and you receive no benefit⁹. The page on missed premiums and lapsed cover explains what happens next.

How to buy a policy and make a claim

You can buy income protection from an independent financial adviser, who may charge, or directly from an insurance company². The choice is between advice, where someone assesses your needs and recommends a policy, and buying direct, where the responsibility for picking the right cover sits with you. The guide to buying protection insurance compares the routes, and the page on applying and underwriting explains the medical questions.

When you apply, expect to disclose your medical history in full². The insurer assesses this at the outset, which is when it decides what it will and will not cover⁵. If you have a pre-existing condition, the guide to getting cover with a medical condition sets out the options.

Making a claim usually follows a short sequence:

1. Notify the insurer as soon as you stop work, or as soon as you know you will.
2. Supply medical evidence, which the insurer may request from your doctor or a specialist⁴.
3. Wait out the deferred period agreed in the policy³.
4. Receive the benefit monthly, typically paid in arrears.
5. Keep the insurer updated on your condition and any return to work.

Good preparation makes claims smoother. The British Insurance Brokers' Association advises keeping insurance documents somewhere safe, reading them thoroughly, checking the cover is up to date and keeping your broker's or insurer's contact details handy²⁴. For life insurance claims on someone else's policy, you contact the insurer or the person's employer to find out about the policy and how to claim²⁵, and the same principle of contacting the insurer first applies to income protection.

Claims can take time. The regulator has flagged long delays in life insurance payouts²⁶, and income protection claims, which need medical evidence and a deferred period to pass, are not instant. The Financial Ombudsman received 246 new complaints about income protection insurance in the third quarter of 2025/26²⁷, a reminder that disputes do arise. The guide to making a claim covers the process in full.

What protects you if something goes wrong

Several layers of protection sit around a policyholder. The first is contractual: rules require policy documents to be written in easy-to-read plain English, so you can understand what is and is not covered². The second is the cooling-off period: if you take out income protection insurance, you usually have 30 days to cancel the policy and get a full refund². After 30 days, the money you are refunded may be less than the amount you have put in².

If the insurer itself fails, the Financial Services Compensation Scheme steps in. For income protection insurance, also known as permanent health insurance or long-term disability insurance, the FSCS pays 100% of the claim if the firm failed on or after 3 July 2015, and 90% if it failed before²⁸. The guide to life insurance and FSCS protection explains how this works.

If a claim is refused or a complaint is not resolved, the Financial Ombudsman Service can look at it. The ombudsman's own guidance on income protection explains how it approaches disputes, including the deferred period and the definition of disability in the policy³. Complaints to the insurer first, then to the ombudsman within six months of the insurer's final response, is the usual route, and it is free.

For free, impartial help with the wider money questions around being unable to work, MoneyHelper and the guides on sick pay and state support point to where to get it. The protection insurance guide covers how income protection sits alongside life insurance and critical illness cover.