Income Protection Insurance UK: What It Is and Why You May Need It

No one expects to fall ill or suffer an injury that could prevent them from working. Yet, according to the Association of British Insurers (ABI), one in four people in the UK will be unable to work for at least a month at some point during their career due to illness or injury.

For many households — especially those in the middle or lower income brackets — this kind of disruption can be financially devastating.

That’s where Income Protection Insurance UK comes in. Designed to replace a portion of your income if you’re unable to work due to a medical condition, this type of cover ensures you can continue paying your essential bills even when your employer’s Statutory Sick Pay (SSP) is no longer available.

What Is Income Protection Insurance?

Income Protection Insurance is a monthly benefit policy that pays out a percentage of your earnings — usually between 50% and 70% — if you’re unable to work due to illness or injury. The idea is to provide financial stability while you’re recovering and unable to earn your regular wage.

There are two key types:

• Short-term income protection: Typically pays out for up to 1 or 2 years per claim.
• Long-term income protection: Covers you until you return to work, retire, or the policy term ends.

Importantly, this is not the same as Sick Pay Insurance, which may be a fixed-term benefit provided directly by employers or available through short-term private policies. Income protection, in contrast, tends to be more flexible and tailored to your income and work situation.

Why Is It Relevant for the Average Worker?

In the UK, Statutory Sick Pay currently stands at £116.75 per week (as of 2024), and it’s only available for up to 28 weeks — assuming you meet the eligibility criteria. For many people, especially those with mortgages, children, or other dependents, that sum is simply not enough to cover basic living costs.

Income protection helps fill that gap, making it a valuable option for:

• Self-employed workers who don’t qualify for SSP
• Employees without robust sick pay schemes
• Households that rely on a single income
• People with ongoing financial commitments like rent or loans

Comparing Statutory Sick Pay vs. Income Protection

How Does Income Protection Insurance Work?

Unlike some forms of insurance that only pay out in extreme or specific circumstances, Income Protection Insurance UK is designed to cover day-to-day living expenses in common but disruptive situations — such as long-term illness, recovery from surgery or mental health conditions that impact your ability to work.

Here’s how a typical policy works:

• You choose the monthly payout amount (usually a percentage of your salary).
• You decide the deferred period — the time between stopping work and the first payment (can be 4, 8, 13, 26, or even 52 weeks).
• You select the claim duration (short-term vs. long-term).
• Once the waiting period ends and your claim is approved, you begin receiving monthly payments until you return to work or reach the end of your cover.

Most providers will require some medical history information when applying, and depending on the policy, they may ask for proof of income or occupational risk details.

Choosing the Right Type of Income Protection Cover

There’s no one-size-fits-all policy, especially when it comes to something as personal as your income and health. Choosing the right income protection insurance means weighing your current job, income stability, health status and family obligations.

Here are the main options available:

1. Guaranteed Premium

Your monthly payment stays the same throughout the term. Ideal for those who want predictable budgeting.

2. Reviewable Premium

Premiums can increase over time. Initially cheaper, but may cost more long-term.

3. Age-Banded Premium

Your payments increase as you get older. Often used for entry-level policies.

4. Own Occupation vs. Any Occupation Cover

• Own occupation: Pays out if you can’t do your specific job.
• Any occupation: Only pays if you’re unable to work at all — any job.
  Own occupation is more protective but usually costs more.

If you still didn’t decide, check this government-backed guidance to help you understand and compare income protection policies.g

What Affects the Cost of Your Premium?

Just like car or health insurance, income protection premiums vary based on risk. The following factors are considered:

For example, a 30-year-old non-smoker with a desk job might pay around £20 to £30 per month for £1,500 of cover. A 45-year-old construction worker could pay double or more for the same protection. Stay up-to-date data on claims, success rates and why more Brits are choosing income cover.

Is Income Protection Insurance Worth It?

Many people wonder if Income Protection Insurance UK is truly necessary — especially when money is already tight. For some, the instinct might be to rely on savings or assume that state benefits or employer sick pay will be enough.

However, the reality for most working people — particularly in the middle and lower-income brackets — is that a few months without income could lead to rent arrears, loan defaults, or worse: the loss of their home or severe debt.

Let’s explore whether income protection is a smart investment and what alternatives are available.

Comparing Income Protection with Other Options

Personal Savings

Many people believe they can simply rely on their savings in case of illness. But how long would your savings realistically last?

According to a 2023 report by MoneyHelper UK:

• 33% of UK households have less than £1,000 in savings
• The average household needs £1,600–£2,000 per month to cover essentials

That means most families could only manage one or two months without income — far less than the time many recoveries require.

Sick Pay Insurance from Employers

Some employers offer sick pay schemes, but not all. And even among those that do, the length of coverage is often limited:

• Statutory Sick Pay (SSP): £116.75 per week for 28 weeks
• Company Sick Pay: Often more generous, but varies greatly

If your employer doesn’t offer long-term support — or you’re self-employed — you’ll likely need to make your own arrangements.

Critical Illness Cover

Critical Illness Insurance pays out a lump sum if you’re diagnosed with a serious condition like cancer, stroke, or heart disease. While valuable, it differs significantly:

In essence, critical illness cover helps with large, unexpected costs (e.g., house adaptations or debt clearing), while income protection ensures you can pay your bills and maintain your lifestyle month-to-month.

Questions to Ask Before You Buy

Before purchasing sick pay insurance or income protection, consider the following:

• Do I have enough savings to cover 3–6 months of expenses?
• Does my employer offer a comprehensive sick pay scheme?
• Could my family afford to live without my income for an extended period?
• What are the exclusions and waiting periods in this policy?

Also, take time to:

• Read the policy documents carefully
• Compare quotes from multiple insurers
• Check if you’re eligible for group cover via unions or associations

Hard times? Explore tips to build a financial cushion in case of illness or income disruption.

Group Income Protection: Is Employer-Provided Cover Enough?

If you’re employed full-time in the UK, you might already benefit from Group Income Protection (GIP) — a type of insurance arranged and paid for by your employer. Unlike private income protection insurance, this scheme covers multiple employees under one policy and often comes as part of a company’s wider benefits package.

But is employer-provided sick pay insurance enough to safeguard your income?

Let’s explore how it works, its key features, and whether you still need additional cover.

What Is Group Income Protection?

Group Income Protection (GIP) is a workplace policy that provides financial support if you’re signed off work due to illness or injury. The employer is the policyholder, and the cover is typically extended to eligible employees.

Key features usually include:

• Monthly benefit: 50–75% of your gross salary
• Deferred period: commonly 13 or 26 weeks
• Payment duration: often capped at 1, 2 or 5 years — sometimes up to retirement
• Return-to-work support services such as rehabilitation, physiotherapy or mental health assistance

Importantly, payments are usually made to the employer, who then continues to pay your salary while you’re off sick.

Advantages of Group Income Protection

There are several reasons why GIP is a valuable benefit:

• No medical underwriting required: Unlike private cover, most employees are automatically included without medical checks.
• Cost-free for employees: Premiums are typically paid entirely by the employer.
• Access to rehabilitation: Many GIP providers offer support to help you return to work faster.
• Inclusion in corporate schemes: It signals that your employer values employee wellbeing.

According to the Chartered Institute of Personnel and Development (CIPD), less than 20% of UK employers offer GIP — meaning it’s a competitive advantage where available.

Limitations to Be Aware Of

Despite its benefits, GIP has notable limitations:

If you rely entirely on employer benefits, you may face gaps in protection if your circumstances change.

Should You Still Consider Personal Cover?

If your employer offers GIP, it’s definitely a benefit — but not necessarily a complete solution.

Consider getting personal income protection insurance if you:

• Plan to become self-employed or freelance in the future
• Work in a high-risk role or industry
• Have limited savings or significant financial responsibilities
• Want coverage that follows you across jobs and into retirement

Combining group and personal insurance gives you the most comprehensive safety net, especially if you want to avoid dependency on a single employer.