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  • Writer's pictureJonathan Norcutt

What is Income Protection Insurance? Mitigating Financial Risk

Thursday 11th April 2024

(information contained within was correct at the time of publication but is subject to change)

Financial security is an important aspect of everyday modern life with an individual’s income representing the foundation upon which their entire life is built. This makes a person’s income stream(s) paramount. So what is income protection insurance?


Unfortunately, unforeseen circumstances can affect a person’s income and disrupt their financial stability, leading to significant financial worry. This risk is what necessitates income protection insurance which can provide a safety net to those who are unable to work due to injury or illness.



What Would You Do if You Couldn’t Work?


Picture this scenario: you’re suddenly told – or come to the realisation – that you are unable to perform your usual work duties due to an illness or injury, which could result in losing out on the income your work provides. After seeking medical advice, you are told that you must undergo a lengthy recovery period, or perhaps, you are told you can never return to your profession as a result of this illness/injury.


terminally ill female patient sat in hospital bed looking out of window


With an income stream that has all but dried up, you’re faced with an inability to pay bills, to pay your mortgage, and to financially support yourself and your family. While Statutory Sick Pay (SSP) may offer some financial aid, this is usually a limited-term benefit and may not provide enough cover to replace your loss of earnings. As of writing, SSP is a weekly rate of £116.75 and is paid for up to 28 weeks, depending on how many days an individual normally works.


This scenario is what makes income protection insurance a crucial financial precaution.



What is Income Protection Insurance?


Income protection insurance is a type of insurance that is designed to support someone unable to work due to illness or injury for a prolonged period of time. It supports an individual by replacing a portion of their lost income as a result of such instances as a long-term illness, injury following an accident, or disability.

cyclist on the ground after having been hit by a car


Income protection insurance endeavours to keep you afloat financially during this distressing time of uncertainty, allowing you to focus on healing and potentially returning to work (if possible).


Income protection insurance is different from critical illness cover – which provides individuals with a lump sum of money following a diagnosis of certain illnesses or disabilities – as income protection pays out a regular monthly income. This will last until you return to work, retire, or come to the end of your policy term or benefit period.



Who Needs Income Protection Insurance?


If you are an individual who is reliant on your income, then income protection insurance could benefit you greatly should you find yourself unable to work due to injury or illness. While different insurance policies may come with their own requirements of who can attain coverage, income protection insurance is ideal for the following:

●      Employees – The majority of employed individuals rely solely on their salaried income for their livelihood and lifestyle. Income protection insurance protects these earnings should an employee no longer be able to fulfil their work duties due to illness or injury.

group of employees discussing income protection insurance

●      Self-Employed Workers – Unlike employees, self-employed individuals are not entitled to employer sick pay, making income protection even more important for them, especially if they are self-employed and have a mortgage to pay.


self employed joiner planning a piece of timber with the satisfying look on his face, knowing that he has income protection

●      Primary Earners – The primary earners of a family hold a vital role in providing financial support to their dependents. Income protection helps to keep families financially stable if the primary earner can no longer work.


large family sat around a table. The table is full of food and glasses of wine.


The hope is that you will never end up in a situation that calls for income protection to be actioned. While many hope to stay happy and healthy working in an enjoyable work position, the reality is you never know when you may need the support of income protection insurance. In 2022, LV found that only 49% of workers would be able to survive more than four months without an income.



How Income Protection Insurance Works


Income protection insurance works like any insurance policy. In return for paying monthly policy premiums, you will be granted access to the benefits of income protection.



piece of paper with plan B written on it for what their plan B is for income protection


The key aspects of how income protection insurance works will vary from provider to provider but typically include:

●      Insurance Premiums – To maintain income protection coverage, you will pay regular premiums to your chosen provider. The premiums you pay will be calculated based on factors, such as age, health, occupation, and the desired amount of income replacement, which may be subject to a minimum and maximum amount set by the provider.

●      Claiming Coverage – After no longer being able to work due to illness or injury, it will be time to claim income protection coverage from your provider. Keep in mind that certain instances may not be covered by your insurance (more on this later).

●      Deferred/Waiting Period – Following a successful claim, you will enter into a deferred period. This is the waiting time from being made unable to work to your first income protection payout. This period can be chosen by you based on your current sick pay arrangements, and deferred periods vary from 1 week to 24 months, subject to provider policy.

●      Benefit Level – Income protection insurance typically covers 50% to 75% of your gross income – this is your benefit level.

●      Receiving Payments – You will receive monthly payments at the agreed benefit level. These income protection payments will carry on until the end of your policy term or benefit period, or when you return to work or retire.

woman on her mobile phone talking arranging her income protection insurance


What Does Income Protection Cover?


While there is no universal list of illnesses or injuries that are/aren’t covered by income protection insurance, it typically covers a wide range of instances that lead to one not being able to work.


The most common illnesses/injuries covered by income protection are:

●      Musculoskeletal problems, such as back pain and arthritis

●      Mental health problems, such as depression and anxiety

●      Cancer

●      Injuries and accidents


man sat in wheelchair with chequered shirt on

Each income protection insurance policy is different and comes with its own sets of terms and conditions, including what illnesses/injuries can be claimed. This is why it is encouraged to browse multiple options with or without employing the services of a qualified protection advisor.



What Income Protection Does Not Cover


What income protection does not cover is similar to what it does cover, in the sense that there is no defined list. However, we can highlight the instances where income protection insurance will likely not be accessible. These include:

●      Pre-existing medical conditions – Conditions that are pre-existing and impact your ability to work may not be covered under income protection as you may be viewed as high risk by a provider.

●      Self-Infliction – Self-inflicted injuries as a result of self-harm or dangerous activities are usually not covered.

●      Pregnancy/Maternity Leave – Income protection insurance is designed to be a safety net for those unable to work due to injury or illness. While some policies offer coverage for pregnancy-related concerns, this is unlikely for most income protection policies.

●      Redundancy or Dismissal – As this is not a result of injury or illness, redundancy or job dismissal isn’t covered. Some policies may have options to add such benefits to a plan.


scenic picture of a man hanging off a rock face.


Income Protection Services: How a Protection Advisor Can Help


Norcutt Mortgages isn’t solely a team of mortgage brokers, we are also protection advisors. Navigating the landscape of income protection insurance can be a daunting, unfamiliar process for an individual to undertake alone. With a protection advisor, you can be aided in your mission of finding the best income protection policy for you and your unique circumstances.


young couple discussing their income protection insurance with a financial advisor

Ways a protection brokerage could help you include:

●      Assessing Your Needs – By assessing your individual circumstances, such as your career, income, financial obligations, and concerns, a protection advisor can identify the ideal level of cover for you.

●      Comparing Policies – Utilising their network of market and specialist providers, a protection broker can compare different policies to find the one that best aligns with your needs.



Final Thoughts on Income Protection Insurance Explained


In conclusion, what is income protection insurance? It is a type of insurance policy that is designed to replace lost earnings as a result of illness or injury that stops you from working.


With financial security being so important to us all, safeguarding your income is worth considering. If you’re still left wondering what income protection insurance is and why you may need it, you can reach out to our team who would be happy to help. Likewise, if you are ready to take the steps towards protecting your income, do so with the help of our protection brokerage which specialises in income protection insurance.

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