What UK employees need to know about income protection insurance

Consumer protection groups say this coverage is one every working adult should consider

What UK employees need to know about income protection insurance

Insurance News

By Mark Rosanes

Only 9% of UK adults carry some form of income protection – a figure that is significantly lower compared to those who have life insurance at 41% and private health insurance at 16%, a recent survey conducted by Which.co.uk revealed.

The not-for-profit consumer protection website added that the situation can pose a serious issue among workers given that very few employers in the country provide support to staff who are out for more than a year due to illness.

“Millions of us have policies such as private health insurance and payment protection insurance, sold to us over the years by salespeople who convinced us we needed protecting,” the firm wrote in an article on its website. “However, while they were right about the protection, they were often wrong about the policies. The one protection policy every working adult in the UK should consider is the very one most of us don’t have – income protection.”

Times Money Mentor, the financial advisory arm of national news outlet The Times, explains that although the UK government provides eligible employees up to 28 weeks of statutory sick pay if they are too sick to work, the amount – which is currently pegged at £96.35 per week – may not be enough for some workers.

What is income protection insurance?

An income protection policy provides a monthly payout that serves as a replacement for a person’s income in the event that they are unable to work due a medical condition, including accidents and diseases.

This type of coverage is tax-free and often pays out until the policyholder returns to work, retires, or dies, although short-term policies that run for a few years can also be purchased at lower premiums.

According to financial advisory website MoneyHelper, income protection insurance typically pays out between 50% and 65% of a person’s earnings and can be claimed “as many times as you need to while the policy lasts.”

There is also often a pre-agreed waiting period before payments begin, the most common are four, 13, and 26 weeks, and one year. The longer the waiting or deferred period, the lower the monthly premiums.

In terms of payout, workers can also avail of an index-linked policy or stepped-benefit income protection.

Index-linked income protection policies take into consideration inflation or the rising standards of living and higher salary over time, so the potential payout also increases annually. According to Times Money Mentor, the increases are often based on the retail price index (RPI) measure of inflation. Some insurance companies also raise the amount by a fixed percentage, usually between 1% and 5%, each year. Premiums for index-linked coverage cost higher than those for a non-indexed policy and go up every year.

Stepped-benefit income protection insurance, meanwhile, factors in whether the employer already offers sickness coverage. The payouts are lower while the employee is receiving a salary from their employer and increase when the company’s contributions decrease or stop.

MoneyHelper adds that policyholders typically have 30 days from the date of purchase to change their minds for them to get a full refund. The firm also advises employees to review their policies regularly to make sure that they have the coverage needed as their circumstances can change over time.

What does income protection insurance cover?

Employees looking for the right income protection insurance policy can choose from three main levels of cover, according to MoneyHelper. These are:

  • Own occupation coverage: This type of policy pays out if the insured is unable to perform his/her current job. Premiums are often the costliest but the likelihood of making a successful claim is high.
  • Suited occupation coverage: This policy covers monthly earnings if the employee is unable to do his current job or a similar one that suits their qualifications and work experience. One of the disadvantages of this type of coverage is that some insurance providers may refuse to pay out if they believe that a person can get another job, which they are “suited” for, although it may entail going down a level.
  • Any occupation coverage: The cheapest policy available provides coverage for any type of work. This type of coverage, however, hinges on how the insurer defines “inability to work.” Insurance providers often assess a person’s ability to perform basic activities, including walking, showering, writing, lifting, climbing stairs, or getting in and out of the car, before paying out, and the risk of having a claim denied is higher.

How much does income protection insurance cost?

There are several factors that impact the monthly premiums of an income protection insurance policy. These include:

  • A person’s age
  • A person’s occupation
  • A person’s smoking habits
  • A person’s health and medical history
  • The percentage of income covered
  • The waiting period
  • The range of illnesses and injuries covered

Rates also depend on whether a policy includes a standard premium, which the insurer can increase over time, or a guaranteed premium, which remains fixed throughout the duration of the policy. The latter often costs slightly more in the short-term but offers more security.

According to Which.co.uk, most insurance providers also classify jobs into four categories of risk – although some insurers use additional groupings – to determine premium prices. The riskier the job type, the higher the likelihood of making a claim. Because of this, workers in the riskiest occupations tend to pay higher premiums. Below is an example of how jobs may be categorised, according to the consumer protection firm.

  • Class 1: Professionals, including managers, administrative staff, clerks, computer programmers, office secretaries
  • Class 2: Workers with high business mileage, including skilled manual workers, engineers, florists, shop assistants
  • Class 3: Skilled manual workers and some semi-skilled workers, including care workers, plumbers, teachers
  • Class 4: Heavy manual workers and some unskilled workers, including bar servers, construction workers, mechanics

Insurers offering income protection coverage

Here are some insurance companies offering income protection coverage in the UK. All information correct as of January, 2022:


Policy name



Personal income protection

Typical inclusions: Income promise; rehabilitation and proportionate benefit; accidental death benefit; lump-sum death benefit; waiver of premium, access to Policy Plus (24/7 health and wellbeing service)


Income protection

  • Lump-sum benefits: Up to £50,000 trauma benefit; £10,000 death benefit; terminal illness
  • Rehabilitation support services: Rehabilitation support; hospitalisation benefit; recuperation benefit; proportionate benefit
  • Additional benefits: Access to Smart Health (health and wellbeing management tool); Winston’s Wish (charity specialising in child bereavement support)


Income Protection+

  • Typical inclusions: Waiver of premium; back to work benefit; hospital benefit; trauma benefit; benefit guarantee; deferred period arrangement for NHS doctors, surgeons, nurses and midwives
  • Optional features: Coverage up to the maximum amount and policy term; full cover to term or two-year limited payment term; a range of deferred periods, including dual deferred; increasing cover
  • Add-ons: Global treatment; fracture cover

British Friendly


Key features: Regular income protection; weekly or monthly payout into chosen bank account; own occupation coverage; pays up to 70% annual taxable income (ATI); £875 per  week maximum benefit; level or RPI-linked cover; guaranteed age-costed premiums; waiver of premium; guaranteed increase options (GIO); mortgage payment option; back to work support


Income First

Key features: Level guaranteed, age-costed guaranteed, or age-costed reviewable premium options; long and short-term claim period options; flexible waiting periods for NHS medical professionals and teachers; employer change promise; £500 to £10,000 monthly coverage; easy to increase as life changes; waiver of premium; fixable benefits; continued pay out if policyholder goes back to work on less money

Legal & General

Income Protection Insurance

Key features: Option to choose between illness and injury insurance or comprehensive income protection benefit; regular monthly benefit; guaranteed premiums unless changes are made to the plan or if the Increasing Income Protection Benefit plan is chosen; return to work rehabilitation support service; flexibility to make changes such as to the benefit amount (eligibility criteria applies)


Income Protection Plan

Key features: On-going regular income pay out; rehabilitation support services; own occupation coverage; up to £2,200 fracture cover; up to £10,000 death benefit; waiver of premium for involuntary employment; parent and child cover; £1,500 benefit guarantee; back to work support and career break options; teachers’ sick pay guarantee; specific features for doctors and surgeons


Income Protection Insurance

Key features: Back-to-work benefit; rehabilitation support services; benefit guarantee; hospitalisation benefit; waiver of premium

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