If you lost your income tomorrow, how long could you keep paying your bills?
For many UK households, the answer is “not long”. The average person in the UK has enough savings to last 3 weeks before they run out of money. That’s where income protection insurance comes in — and it’s one of the most-searched financial topics in the UK for a reason.
In this guide, we’ll explain how income protection works, who needs it, and what to look for in the best income protection policy.
What Is Income Protection Insurance?
Income protection is an insurance policy that pays you a regular monthly income if you’re unable to work due to illness, injury, or accident. If a Dr signs you off as sick with a sick note, the policy will pay out. This can be for any injury or illness from a twisted ankle to stage 4 cancer and everything in between.
Unlike critical illness cover, which pays a onetime lump sum, income protection replaces a portion of your salary — up to 65% of your gross income — until you return to work or reach retirement age.
It’s designed to help you cover your mortgage, bills, and living costs while you focus on getting better.
How Does Income Protection Work?
An income protection policy can be tailored to suit your needs. Here’s a simple breakdown:
1. You choose your cover amount – normally based on your salary, up to 65% of your gross income.
2. You choose a deferred period – how long you’ll wait before payments start (often 4, 8, 13 or 26 weeks). If you have sick pay from work, you can work your deferred period around that to make sure you have no gaps in income.
3. If you can’t work, you make a claim by calling the insurance company.
4. The insurer pays you a monthly benefit until you return to work, the claim period ends or the policy ends.
Example:
If you earn £3,000 a month and your income protection replaces 60% of your salary, you’d receive £1,800 per month while you’re off work. If you have 3 months full pay from your employer you can set your deferred period to 13 weeks.
Who Should Have Income Protection?
Anyone who depends on their income to pay their bills should consider it — especially:
• Homeowners with mortgages who need to keep up repayments.
• Self-employed professionals who don’t receive sick pay.
• Families with financial dependants.
• Anyone relying on savings to get by if they couldn’t work.
Even if your employer offers sick pay, it might only last a few months — income protection bridges the gap until you’re back on your feet.
Is Income Protection Insurance Taxable?
Generally, income protection payouts are tax-free if you pay your premiums personally.
If your employer provides a policy as a benefit, payments may be taxable as income — your adviser can confirm how this applies to you.
Does Income Protection Cover Redundancy?
No — income protection does not cover redundancy or job loss due to company closure. However, some insurers offer separate redundancy protection known as accident, sickness and unemployment cover. However since COVID many insurers withdrew these types of policies.
Income protection is designed for when you can’t work because of health reasons, not when your role no longer exists.
When Does Income Protection Pay Out?
Once you’ve been off work for your chosen deferred period (say, 4 or 8 weeks), your insurer will start payments — and these continue until you return to work, reach the policy end date, or retire depending on which type of cover you took out.
Some shorter-term policies pay for up to 2 or 5 years, while long-term policies can pay right up to retirement age.
What Should I Look for in the Best Income Protection policy?
When comparing policies, consider:
• Level of cover: How much of your income you want to protect.
• Deferred period: How long before payments start.
• Definition of incapacity: Does it pay out if you can’t do your own job or any job?
• Policy length: Short-term (1–5 years) or long-term (to retirement).
• Added benefits: Some providers include access to GP consultations, counselling, or rehab support.
Working with an independent mortgage and protection adviser like Green & Green means we compare multiple insurers across the market to find the best fit for your situation.
Why Income Protection Is Worth It
A 2024 industry report by Legal & General showed the average income protection claim lasted 29 weeks — that’s over half a year of lost earnings. If you have now sick pay from work that’s a long time to rely on savings and many potential missed payments on your mortgage and credit agreements.
With living costs rising, income protection gives you peace of mind knowing that if life throws you a curveball, your finances won’t collapse.
Ready to Protect Your Pay?
At Green & Green Mortgages & Protection, we help clients across Hull and East Yorkshire find tailored income protection that fits their lifestyle and budget.
Whether you’re self-employed, a homeowner, or simply want peace of mind, we’ll help you choose the right cover — and explain everything in plain English.
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