What Is Income Protection Insurance and Why You Need It

Income Protection Insurance

What is Income Protection Insurance?

Income protection insurance formerly known as permanent health insurance is an insurance policy or a long-term insurance policy that helps you in case you are not able to work because you’re ill or injured.
Thus, it ensures to pays out until retirement, death or your return to work. So, it offers the following features to us:

  • It replaces part of your income
  • It pays out until you can start working again
  • There’s often a waiting period before the payments start
  • It covers most illnesses that leave you unable to work or insurance against job loss is available
  • You can claim as many times as you need to

It’s different from critical illness insurance, which pays out a single off lump sum if you have a specific serious illness. It is also different from short-term income protection.

What are the Different Types of Income Protection?

There exists are two types of income protection policy which are as:

  • Short-term Income Protection policies
  • Long term Income Protection

salary protection insurance

1. Short Term Income Protection

These policies payout for up to 12 months or until you’re fit to return to work or retire. Some of the different Accident Sickness and Unemployment short term income insurance policies includes or covers Payment Protection Insurance (also known as PPI) and Mortgage Payment Protection Insurance (also known as MPPI).

2. Long Term Income Protection

Long Term Income Protection gives you a tax-free regular income until you’re able to go back to work or you retire. It usually provides a regular income.

Furthermore, it can also be classified or grouped depending on the need, which can be summed up as:

  • Income protection insurance self-employed
  • Private income protection insurance
  • Redundancy insurance

1. Income protection insurance self-employed

A monthly income is provided in case of Self Employed Income Protection if you cannot work due to an accident or sickness.

2. Private income protection insurance

Health Insurance referred to as private income protection insurance that let you protect against healthcare treatment in private hospitals as well as settle the medical bill directly.

3. Redundancy insurance

Redundancy insurance which is also known as unemployment insurance helps you by protecting you against your job and payout if you lose your job. Thus, income protection insurance redundancy gives you a handsome salary in hand, even if you are jobless. Thus, acting as insurance against job loss.

Why do I need Income Protection Insurance?

income protection insurance usa

As per the ABI, one million workers a year are unable to support their employees due to a serious illness or injury. Thus, everyone of working age should consider buying or opting for income protection.
But, as a matter of fact, only 9{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} have some form of income protection, compared with 41{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of the people who have opted for life insurance and some 16{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} who have opted for private health insurance.
Therefore, we suggest you opt for one income protection policy in case you have not purchased a life insurance policy or have not opted for any other insurance policy like health insurance, etc.

Who Doesn’t need Income Protection Insurance?

You may not need income protection insurance in case of the following situations:

  • You could get by on your sick pay:

In case you have an employee benefits package that gives you an income for 12 months or more then you might not need income protection insurance for yourself.

  • When you can survive on the government benefits:

You can surely survive on the government benefits but these are not enough to meet down your outgoings.

  • When you have enough savings to support yourself:

In case you have long term savings to support yourself then you can drop the idea of income protection insurance.

  • You could take early retirement:

When you have the option to retire early as well as you can afford to retire early, then you can drop the idea of income protection.

  • When your partner or family can support you:

In case you have your back from your partner or family then you don’t need to purchase income protection insurance.

Thus, on the contrary, you need Income protection insurance if you are:
Keen to maintain your financial independence in the occurrence of illness or injury or spontaneous unemployment

  • Paying off for a mortgage
  • To Support a family
  • Self-employed
  • A small business owner

How much Does Income Protection Insurance Cost?

income protection insurance self employed

The cost of income protection insurance will depend on the policy and even on your prevailing circumstances. Though, the average premiums range from £23.50 per month to nearly about £10 per month.

Generally, a wide range of illnesses, as well as situations, are included in income protection insurance covers.

So, the factors affecting the cost of a policy can be summarized as:

  • age
  • job
  • Whether you smoke or smoked in the past
  • The percentage of income you’d like to cover
  • The waiting period before the policy pays out
  • The range of illnesses and injuries covered
  • Health (your current health, as well as your weight, and even your family medical history).

How much Does Income Protection Payout?

The payouts of Income protection are usually based on a percentage of your earnings and it is mostly 50{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 70{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} as per the norms. Here, you are free of the income tax burden as payments are tax-free from income protection policies.

What’s  Covered by Income Protection Insurance?

You can expect a regular benefit amount from the income protection insurance as it pays you when you are unable to work for a comprehensive period of time. Therefore, it is sometimes identified as salary continuance. And as it is tax-free, so you can claim your premiums on your personal tax return.

income protection insurance redundancy

Some of the benefits covered by income protection insurance include:

1. Payouts for hospitalization:

You get a proportion of your income protection when going to the hospital. And even if your deferral period is over you can get the insurance.

2. Waiver of premiums:

You don’t need to pay premiums in case you are claiming on your income protection policy.

3. Life insurance:

Mostly the income protection policies come with life insurance.

4. Payments when you go back to work:

The income protection policy pays you out even when you go back to work. But this happens only in case when your earnings are reduced because of your illness.

5. No deferral period if you get ill again:

You don’t have to wait to get a payout when you’ve made a claim again within 12 months. Thus, there is no deferral period involved if you get ill.

What’s not Covered by Income Protection Insurance?

Some of the specific exclusions of the income protection insurance which vary depending upon the provider can be summed up as work due to an illness or injury caused due to mental illness, self-inflicted injury, attempted suicide, drug use, or participating in illegal activities, or a pregnancy.

How Does Income Protection Work?

After a specified period of time, Income protection policies pay out a set amount of income. A waiting period of between one and 12 months can be selected which pays out until you either return to work, or retire, or the policy expires, or in case of death.

What are The Benefits of Income Protection Insurance?

As per the income protection policy, there are diverse benefits available of income protection insurance such as:

  • Accident insurance: This can help you by paying up to 70{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your monthly gross income as well as by covering your main financial commitments like your mortgage or rent, etc; which is different from mortgage protection insurance.
  • Bill protection: income protection policy helps you by covering your monthly outgoings like loans, credit cards, and household bills.
  • Loan protection: this policy helps you to cover your loan repayments and other financial commitments.
  • Mortgage protection insurance: Here, it can also pay your mortgage repayments during your absence of work.
  • Salary protection: Here the 70{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your salary can be replaced by using this income protection policy.
  • Sickness insurance: Here, a long-term policy can get you 70{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your salary and also cover you up until retirement age.
  • Unemployment protection: You can get up to 65{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your gross income each month for about 12 months or until you find another job.

Compare income protection insurance

Some of the things you should consider while comparing an income protection policy are:

  • A logically high sum insured
  • A sensibly short waiting period involved
  • A logically long benefit period ( which is also known as claim period) it signifies the length of time in which you can continue to claim benefits
  • A partial disability benefit
  • A recurrent disability benefit
  • A specified injury or illness benefit
  • No exclusion on your pre-existing conditions
  • An affordable insurance premium

3 Things the best income protection insurance policy should hold

The best income protection insurance policy will contain the following:

  • It Gives you the income cover you need
  • It covers you for the length of time you want
  • It Offers the cheapest monthly premiums

What Is The Best Income Protection Insurance?

The Best Income Protection Insurance USA depends upon the specific use of the insurer and according to the policy is framed. Thus, we can categorize the top income protection insurance as follows:

income protection insurance comparison

1. Income Protection which Has the Least Exclusions

There exist some insurance that does not have any standard exclusions and the insurer will pay out for any medical condition. This can also be categorized as:

No standard exclusions for accident or sickness

  • Aviva
  • Liverpool Victoria
  • British Friendly
  • Exeter Family Friendly
  • Vitality
  • AIG

2. Some standard exclusions for accident or sickness

  • Legal & General
  • Aegon

Income Protection Providers Have the Best Payout Rates

On the basis of payout rates i.e. the percentage of all claims that are paid. We suggest the best income protection insurance as:

  • Aegon
  • Liverpool Victoria
  • Holloway Friendly
  • British Friendly
  • Royal London
  • Aviva
  • Zurich

7 Best Income Protection Insurance

Income Protection Insurance

1. Aviva

Aviva Income Protection Solutions was originated a long time back in 1797. It is now a merger of Norwich Union and CGU PLC.


  • Cover up to age 70
  • Maximum benefit: 55{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of income
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: 4 / 8 / 13 / 26 / 52 / 104 weeks

2. British Friendly

It was founded in 1902. British Friendly is one of the country’s largest friendly societies providing Income Protection.


  • Cover up to age 70
  • Maximum benefit: 70{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of income (capped at £45,000 per year)
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks

3. Cirencester Friendly

It was founded in 1889 and has more than 30,000 members to date. It has even won the COVER Excellence Customer Care Award in 2017.


  • Cover up to age 70
  • Maximum benefit: 65{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of income (capped at £65,000 per year)
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: Day 1 or 4 / 8/ 13 / 26 / 52 weeks

4. Legal & General

It was founded in 1836 and has more than 10 million protection customers over the world. It even offers both long-term and short-term Income Protection.


  • Cover up to age 70
  • Maximum benefit: 60{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} gross taxable earnings (maximum of £200,000 per year)
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: 4 / 13 / 26 / 52 weeks

5. Liverpool Victoria

It is categorized as the UK’s leading friendly societies having around 5.8 million customers among which 1.1 million are members. It even offers a broad range of different products.


  • Cover up to age 70
  • Maximum benefit: 60{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of income (max. monthly benefit: £12,500)
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: 1 / 2 / 3 / 6 / 12 months

6. Royal London

It was founded in 1861. Royal London is the UK’s largest mutual life, pensions, and investment company providing Income Protection.


  • Cover up to age 70
  • Maximum benefit: 65{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of the first £15,000 and 55{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of the remainder, (max. £250,000 p.a.)
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: 4 / 8 / 13 / 26 / 52 weeks

7. Vitality

Vitality founded in 2007 and is one of the country’s leading protection companies offering an innovative approach to insurance, with discounts as well as health and fitness regimes.


  • Cover up to the age of 70
  • The maximum benefit available is for Comprehensive policies – up to 60{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your earnings capped up to £2,500 per month and 50{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of any earnings above
  • Definition of incapacity is defined by Own occupation
  • Deferred Period ranges about: 1 week or 1 / 3 / 6 / 12 months


An income protection policy covers accident or sudden illness, as well as your living costs. Thus, income protection policy pays you a regular cash amount when you are unable to work or job less.

You need to select a waiting period while you are selecting the income protection insurance policy for yourself which usually ranges between 30 to 90 days. And it is generally tax deductible.

You can get a cover for redundancy, but you will not get income protection claim in case you lose your job.

With the long-term income protection plans, the maximum income protection benefit one can avail is up to 65% of gross earnings.

Yes, you can have more than one income protection policy. But, purchasing more than one insurance policy is not a cost-effective way of getting insurance protection. On the other hand, you can opt for both an ASU and a PHI policy.

No, income protection does not pay you out when you die. As only the term of your policy specify the cover for your income.

Yes, you can get income protection if you are self employed but you will need to provide a year's audited accounts which act as an income proof.

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