What Is Income Protection Insurance?

What Is Income Protection Insurance?

Income Protection Insurance or Personal Protection Insurance is a type of cover that many people choose to take out to ensure their financial security. We take a look at what Income Protection Insurance is, what it covers, and everything else you need to know.

What is Income Protection Insurance?

Income Protection Insurance is a long-term type of insurance that covers the policyholder’s cost of living when their usual income source is lost due to no fault of their own, for example when serious illness or injury prevents them from being able to perform their job. It covers most illnesses that prevent the policyholder from working, whether these are short or long-term absences. 

Personal Income Protection Insurance can help to cover the essential costs of living such as rent or mortgage payments and household bills. While income protection isn’t legally required to get a mortgage, many people take out a policy for this purpose.

How does Income Protection Insurance differ from sick pay?

Most businesses do offer some form of sick pay support for serious illness or injury, but this is usually limited and most employees will be moved onto Statutory Sick Pay within six months. Employers also only have to pay Statutory Sick Pay for up to 28 weeks. 

On the other hand, Income Protection Insurance provides long-term regular payments while the policy term lasts until the policyholder can start working again, retires or dies. 

Personal Income Protection Insurance is also different to Critical Illness Insurance. The latter cover provides a lump sum in the event of critical illness, whereas the former provides a regular monthly income.

How much does Income Protection Insurance pay out?

Income Protection Insurance typically pays out between 50 – 70% of the lost income when the policyholder is unable to work. Income Protection Insurance can be claimed as many times as necessary while the policy lasts, meaning that – should the policyholder return to work, but then fall ill again and need to stop working – they would be able to start claiming the insurance payments again.

The amount Income Protection Insurance pays out will take into account and make deductions for benefits the policyholder will be able to claim, the lack of work-related expenses such as commuting and the fact that the payouts are tax-free.

Deferred period

When taking out a new Personal Protection Insurance policy, there is usually a deferred period before any payouts can be made. This deferred period can range from anywhere between four weeks and two years and will depend on the policyholder’s circumstances.

What affects the cost of Income Protection Insurance?

Individual circumstances and policy requirements will affect the cost of an Income Protection Insurance policy. Criteria that may affect the policy price include:

  • Age – older applicants will usually have to pay more for their policy as they are deemed higher risk.
  • Occupation – certain jobs contain more hazards and a higher risk of injury, and applicants who work in these professions may face a higher policy price.
  • Medical history – those with existing medical conditions may face higher policy prices, and these conditions may be excluded from the policy.
  • Lifestyle – smokers and heavy drinkers are likely to face higher policy prices.
  • Hobbies – those who partake in high-risk hobbies such as extreme sports may have to pay a higher rate.
  • The waiting period – applicants can agree to a longer waiting period between being out of work and the income protection payments starting, which will usually reduce the cost of the policy. 
  • Percentage of income covered – the more income applicants want to be covered, the higher the cost of the policy will be.

What are the different types of Personal Income Protection?

Income Protection Insurance normally has two levels of cover for policyholders to choose from, each with a different cost. 

Own or suited occupation cover

These policies are usually the more expensive option but they pay out when the policyholder can’t do their usual job, even if they could potentially do a job in a different field. Suited occupation cover is similar in that it will apply if the policyholder can’t do their own job or a similar job relevant to their experience or qualifications. 

Any occupation cover

These policies are usually cheaper as they only pay out if the policyholder is unable to do any work at all through illness and injury. For example, if an injury prevents someone from doing their usual job but would not prevent them from doing a job in a different field, the policy would not pay out.


Personal Income Protection insurance could be one of the most important policies a worker takes out. While employer sick pay and statutory sick pay can help to ease the burden, they are rarely sufficient for long-term illnesses, but an income protection policy ensures important bills and payments can still be made, even over an extended period.

Opie & Associates are specialised income protection brokers and we can help you find the best deals for protecting your earnings. If you are interested, please get in touch with our team.