Income Protection Awareness Week 2025
Understanding Income Protection Insurance: A Safety Net for Your Earnings
How many of us have a safety net for our earnings? Income protection insurance is a vital financial product designed to provide a regular income if you’re unable to work due to illness or injury. In the UK, where statutory sick pay and state benefits may not be sufficient to cover living costs, this type of insurance can offer essential support for both employees and the self-employed.
What Is Income Protection Insurance?
Income protection insurance—formerly known as permanent health insurance—is a long-term policy that pays out a portion of your income if you’re unable to work due to health reasons. Unlike critical illness cover, which pays a lump sum for specific conditions, income protection provides ongoing monthly payments until you can return to work, retire, or the policy ends .
Typically, policies cover between 50% and 70% of your gross income, and the payments are tax-free. This helps you manage essential expenses like mortgage or rent, utility bills, and daily living costs during periods of incapacity.
How Does It Work?
Income protection policies include a deferral period—a waiting time before payments begin. This can range from 4 weeks to 12 months, depending on your policy and how long you can manage without income. The longer the deferral period, the lower your premiums
You can claim multiple times during the life of the policy, and it covers a wide range of conditions, including both physical and mental health issues. However, pre-existing conditions are usually excluded unless specifically covered
Who Should Consider It?
Income protection is particularly valuable for:
- Self-employed individuals, who don’t receive statutory sick pay.
- Employees with limited sick pay benefits.
- Anyone without substantial savings or family support to fall back on.
If your employer offers generous sick pay or you have enough savings to cover long-term illness, you might not need it. But for most working-age individuals, it’s worth considering
Cost and Factors Affecting Premiums
Premiums vary based on:
- Age and health
- Occupation risk level
- Smoking status
- Amount of income covered
- Length of deferral period
- Type of premium (standard vs. guaranteed)
For example, a 35-year-old non-smoker in an administrative role might pay around £14* per month for a £1,500 monthly benefit, with a 6 months deferred period and to age 65. This premium would be guaranteed not to rise throughout the term of the plan.
*Assureweb open market quote 15/9/25
Choosing the Right Policy
When selecting a policy you should consider:
- Level of cover: Choose between “own occupation,” “suited occupation,” or “any occupation” definitions.
- Exclusions: Understand what illnesses or conditions are not covered.
- Flexibility: Some policies offer benefits like hospitalisation payouts or continued payments if you return to work on reduced hours
- Review regularly: Update your policy as your circumstances change—e.g., new job, mortgage, or family additions
Final Thoughts
Income protection insurance offers peace of mind and financial stability during uncertain times. While it may not be necessary for everyone, it’s a crucial consideration for those without robust employer benefits or savings.
Please contact your financial planner at Thorntons Wealth if you feel this could be of benefit.
This information has been prepared using all reasonable care. It is not guaranteed as to its accuracy, and it is published solely for information purposes. Our opinions are subject to change without notice and we are not under any obligation to update or keep this information current. It is not to be construed as a solicitation and does not in any way constitute advice.