How much of my salary does income protection pay?

Income protection pays a percentage of your salary, not all of it. The typical range is around 50% to 70% of your pay, and Citizens Advice puts the figure at about a half to two-thirds of your earnings before tax from your normal job¹. It arrives as a regular monthly income rather than a lump sum, and it is paid while you cannot work because of illness or injury³.

The percentage is worked out on your gross, or pre-tax, salary. Because the payout itself is tax free, the amount that lands in your account can sit closer to your old take-home pay than the headline figure suggests². Insurers also cap the monthly benefit, and several pay a lower percentage on higher earnings, so the more you earn the less of it a policy tends to replace proportionally⁶.

What you actually receive can be less again, because most policies are built to sit behind employer sick pay and state support rather than on top of it. The Financial Ombudsman Service says 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 policies⁸.

A regular monthly income, not a lump sum

Income protection gives you a regular monthly payment if you cannot work because of illness or injury³. Nationwide describes it the same way, as a monthly pay out⁹. That is the central difference from life insurance, which pays a lump sum on death: income protection provides regular payments that replace a portion of the policyholder's income if they become incapacitated¹⁰.

The money is designed to stand in for a salary, so it is paid in the same rhythm as one. Legal & General says payouts are monthly in arrears, meaning you are paid after the period the payment covers rather than in advance⁴. Claims are typically paid until the person returns to work, retires or the policy ends, so a long-term policy can run for years rather than months¹¹.

How much arrives each month depends on the cover you chose when you took the policy out, not on what you happen to need when you claim. Insurers express the benefit as a percentage of your income, and the policy document sets the maximum monthly amount you can be paid. Some policies also include a small life cover element alongside the income: one insurer's income protection benefit includes life cover equal to 12 times the monthly premium¹².

Income protection usually pays 50% to 70% of your salary

The headline answer is a range, because insurers set their own limits. Which? reports that income protection typically pays out a regular income rather than a lump sum, usually covering around 50% to 70% of your salary¹. Citizens Advice says you can expect to receive about a half to two-thirds of your earnings before tax from your normal job². The Financial Ombudsman Service describes it simply as a percentage of your income each month⁸.

Individual insurers sit inside or just outside that band. One provider says you will receive a percentage of your income, usually up to 65% of your wage¹⁰. Another limits the amount you get when you make a claim to between 50% and 75% of your earnings before you were unable to work⁵. A third describes tax-free monthly payments of usually up to 50% to 60% of your usual income before tax¹³. One insurer's glossary goes further, saying income protection usually covers around 80% of your pre-tax salary, which is higher than the range the consumer bodies give¹⁴.

That spread is not a contradiction so much as a difference in what each figure includes. A policy may quote a maximum percentage of salary, then reduce the actual payment by state benefits, by other income protection policies, or by a tiered scale on higher earnings. The percentage in the brochure is the ceiling, not a promise.

Is the percentage based on my salary before or after tax?

It is based on your earnings before tax. Citizens Advice frames the payout as a share of your earnings before tax from your normal job², and insurers quote their limits the same way: up to 70% of your pre-tax income¹⁵, up to 60% of your monthly earnings¹⁶, or up to 65% of your annual salary¹⁷.

The reason the gross figure matters is that the payout is not taxed. Citizens Advice states that the income you get from the policy is tax free², and Which? lists income protection as a regular tax-free monthly income¹⁸. One insurer confirms that benefits for income protection policies are tax-free⁵, and another describes a tax-free monthly income while you are unable to work¹⁹.

Put those two rules together and the arithmetic works in your favour. A payout set at, say, two-thirds of gross pay is not then cut by income tax, so it can compare reasonably with the net pay you were used to. That is also why insurers are comfortable quoting percentages that look low at first glance. The comparison a reader should make is between the tax-free payout and their take-home pay, not between the payout and their gross salary.

Tiered cover: a lower percentage on higher earnings

Some insurers pay a higher percentage on the first part of your salary and a lower percentage on the rest⁷. The effect is that the more you earn, the smaller the share of your income a policy replaces, even though the cash amount may still rise.

Two worked examples from insurer literature show the shape of it. One insurer covers up to 60% of your gross annual income up to £60,000 a year, then 50% of your gross annual income over £60,000 a year⁶. Another pays 65% of your annual earnings up to £60,000, and 50% of annual earnings over £60,000 and up to £100,000²⁰. Both use the same structure: a more generous rate on the first slice, a tighter one above it.

Group schemes run by employers follow a similar logic. Most employers choose to cover their employees for 50% or 75% of salary²¹. Where a scheme includes it, the income protection benefit will be a percentage of the employee's salary minus the state benefit, such as Employment and Support Allowance²¹.

The practical consequence is that high earners should not assume a policy will preserve their standard of living. A percentage that looks adequate on an average salary replaces a much smaller slice of a large one, and the cap on the monthly benefit bites sooner.

Maximum benefit caps set by insurers

Every insurer sets a ceiling on the monthly benefit, and it applies whatever your salary. One insurer's increasing cover option allows a maximum of £14,000 per month, or £168,000 per year¹². Another pays a maximum of £1,666.67 per month, up to £20,000 per year, to someone who is a houseperson, not working, or working fewer than 16 hours a week when they make a claim²³.

The cap is usually expressed as a formula rather than a flat number. One insurer says the maximum monthly benefit you can choose is based on 60% of your annual income for the first £60,000 and 50% of your annual income over £60,000²³. Group schemes can also cover pension contributions as an optional extra: the maximum one insurer can cover is 35% of the employee's salary, with a maximum contribution of 7.5% for the employee²¹.

Two things follow for a reader. First, the maximum you can insure is set by the insurer's rules, not by what you would like to protect. Second, if your outgoings are high relative to your salary, income protection alone may not cover them, and the gap has to be met from savings, a partner's income or a reduced budget.

Payouts are free of income tax

The tax treatment is one of the clearest rules in this market. Citizens Advice states that the income you get from the policy is tax free². Which? lists income protection as a regular tax-free monthly income¹⁸. One insurer confirms benefits for income protection policies are tax-free⁵, and another describes a tax-free monthly income while you are unable to work¹⁹.

For comparison, life insurance payouts are not subject to income tax or capital gains tax either²⁴, so neither product creates an income tax bill on the money it pays out. The difference is in what triggers the payment and how it arrives, not in how it is taxed.

The tax-free status is also part of why insurers cap the percentage. If a policy replaced your whole salary tax free, a claim could leave you better off than working. The gap between your old pay and your payout is deliberate, and it is the reason the percentages sit where they do.

How employer sick pay and benefits reduce your payout

Most policies are designed to start where other support stops. One insurer's guidance says income protection policies only pay out when other policies stop protecting you, such as company sick pay, and will allow you to claim as many times as you need to¹⁹. That is what the deferred period is for: it matches the wait before the policy starts paying to the sick pay your employer provides.

The Financial Ombudsman Service sets out the principle plainly:

Pension income can also be deducted. If you have an income protection plan, also called permanent health insurance, income from your pension could reduce payments from the plan, and it is worth checking with your HR or pensions department²⁵. Getting payments can affect the benefits you get or are eligible for²⁶.

Universal Credit interacts with a payout in two directions. The amount received is based on income, savings and family circumstances²⁷, and payments reduce by 55p for every £1 earned above the work allowance²⁸. Some benefits count as income and reduce Universal Credit, though the same amount is received overall²⁹. Disability Living Allowance, Personal Independence Payment and Child Benefit do not affect Universal Credit³⁰. For self-employed claimants, payment can be affected by the amount the Department for Work and Pensions expects them to earn each month, called the minimum income floor³¹.

Does income protection pay the same amount every month?

Once a claim is agreed, the payment is normally a fixed monthly amount, paid monthly in arrears⁴. But the amount is not frozen for the whole claim. If you go back to work part time, a partial benefit can be paid. One insurer's example: if you are earning 60% of what you were making, 40% of your income protection benefit would be payable until your earnings reach the level they were at before⁵.

Payments also stop for defined reasons. Claims are typically paid until the person returns to work, retires or the policy ends¹¹. And the policy will not pay for everything: income protection will not usually pay out if you lose your job, are made redundant or choose to stop working, because it is not unemployment cover³³. If redundancy cover is what you need, that is a different product.

The definition of incapacity in your policy affects whether a claim is paid at all, and therefore how much you receive. Cover can be written on your own job or occupation, or on your job or a similar one you are qualified or have the experience for²⁶. The narrower the definition, the harder it can be to claim.

Can self-employed people get income protection based on their earnings?

Yes. Income protection is also available for the self-employed and small business owners¹¹, and self-employed individuals can take out income protection insurance¹⁷. The difference is how earnings are evidenced: instead of a salary, an insurer looks at your accounts or tax returns to work out your income.

There is a floor built into some policies for people without earnings to replace. One insurer guarantees £1,500 for employed and self-employed claimants¹². Another pays a maximum of £1,666.67 per month, up to £20,000 per year, to someone not working or working fewer than 16 hours a week when they make a claim²³.

Self-employment brings its own income risk. The self-employed face the possibility of earning less, unlike employees, who are guaranteed at least the National Minimum Wage³⁴. For Universal Credit purposes, if you make a loss from self-employment, only your employment earnings will be used to calculate how much you get³⁵, and your actual payments of tax and National Insurance are deducted when you pay them³⁶. If you are gainfully self-employed, your Universal Credit payment is calculated using the minimum income floor³¹.

One practical point in favour of cover for the self-employed: you can typically claim the premiums for income protection insurance as a business expense against your taxable income¹⁷.

Working out how much cover you need

Start from the gap, not the percentage. Add up what you would receive if you could not work: employer sick pay for as long as it lasts, any state support you would be entitled to, and any pension income that would be paid. Then compare that total with your essential outgoings. The shortfall is the amount a policy would need to cover, and it is usually smaller than your full salary.

The cost of cover depends on 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. Insurers list the same factors: your age, health and lifestyle information, your occupation, your deferred period, and the type of policy you choose¹⁷. Prices vary depending on your job, health and the level of cover, and cheaper policies may offer a lower level of protection, so it is worth checking what is included¹.

A few things are worth weighing before you decide how much to insure:

• The deferred period. A longer wait before payments start usually reduces the premium, but you have to fund that period yourself.
• The definition of incapacity. Own occupation cover is broader than suited occupation cover²⁶.
• The cap. Check the maximum monthly benefit, because it may be lower than the percentage suggests¹².
• Other income. Pension income and similar policies can reduce what the plan pays⁸.
• Benefits. A payout can affect the benefits you get or are eligible for²⁶.

If you are comparing income protection with other ways of protecting your income, it helps to see how it sits alongside life insurance and critical illness cover, which pay lump sums rather than a monthly income. For the mechanics of how a policy is set up and claimed, see how income protection insurance works, and for the rules on what happens when a claim is refused, see when income protection will not pay out.