Income protection

Replaces part of your earnings if illness or injury stops you working. The most useful cover, and the least bought.

Income protection pays you a monthly income if you can't work because of illness or injury. It keeps paying until you recover, retire, or the policy ends.

It's the cover that matches the most likely serious risk to a working person's finances, and it's bought far less often than life insurance — largely because it's more expensive, more complicated to buy, and nobody sells it with a mortgage.

How it works

You choose a monthly benefit, typically capped somewhere around 50–65% of your gross earnings. The cap exists deliberately: the benefit is paid tax-free, so a lower gross figure can still be close to your usual take-home, and insurers don't want people better off claiming than working.

You choose a deferred period — how long you wait before payments start. Commonly four, thirteen, twenty-six or fifty-two weeks. The longer the wait, the cheaper the premium.

You choose how long it pays for. This is the single biggest decision.

Full-term versus short-term

Full-term policies pay until you recover or reach the policy end date, which is usually your intended retirement age. If you're 40 and never work again, it pays for twenty-five years.

Short-term policies pay for a limited period per claim — often one or two years — then stop even if you're still ill.

Short-term is considerably cheaper and it's what many people end up with. It covers the common scenario of a serious but recoverable illness. It does not cover the scenario that would actually ruin you, which is never working again.

If you can afford full-term, buy full-term. If you can't, short-term is much better than nothing — but know which you've bought, because plenty of people don't.

The definition that decides everything

How the policy defines "unable to work" matters more than the premium.

Own occupation pays if you can't do your own job. This is the definition you want. A surgeon who develops a hand tremor can't be a surgeon, and an own-occupation policy pays even though they could do other work.

Suited occupation pays if you can't do your own job or another suited to your training and experience. Weaker.

Any occupation pays only if you can't do any job at all. Very weak — it can mean being expected to take any work you're physically capable of before the policy pays.

Activities of daily living definitions are weaker still, tied to whether you can perform basic physical tasks. Sometimes used for people in higher-risk occupations who can't get better terms.

Own occupation is worth paying more for. It's the difference between a policy that responds to your actual situation and one that argues about it.

Matching it to your sick pay

The deferred period should generally start when your employer sick pay ends. Someone with six months' full pay who buys a four-week deferred period is paying a substantially higher premium for cover they can't use — most policies won't pay while you're receiving full salary anyway.

This is why What you already have comes first. Getting the deferred period right can cut the premium significantly.

Guaranteed or reviewable premiums

Guaranteed premiums are fixed for the life of the policy. You pay more at the start and know exactly what it costs forever.

Reviewable premiums start lower and can be increased by the insurer, typically every five years. They tend to rise as you age, sometimes steeply, and the increases arrive exactly when the cover has become harder to replace.

Guaranteed is usually the better buy for long-term cover, and the difference at outset is often smaller than people expect.

Other features worth checking

Indexation. Whether the benefit rises with inflation, both before and during a claim. A fixed benefit paying for twenty years loses much of its value.

Waiver of premium. Whether you stop paying premiums while claiming. Most policies include it; check.

Linked claims. Whether a recurrence of the same condition within a period restarts the deferred period or continues the original claim.

Proportionate or rehabilitation benefit. Whether the policy pays a partial benefit if you return part-time. Valuable, and increasingly common.

If you're self-employed

Income protection matters more, not less. There's no employer sick pay, no death in service, and the state safety net for the self-employed is thinner.

Insurers will want evidence of earnings, usually accounts or tax returns over several years, and the benefit is based on profit rather than turnover. Newly self-employed people can find cover harder to arrange, which is an argument for sorting it early rather than waiting until the business is established.

The honest downside

It's the most expensive of the main protection products, the underwriting is the most involved, and it's the one where the detail genuinely determines whether you're covered. It's also the one most likely to be needed.

Whether it's worth it depends on the gap you identified — what you'd lose, minus what already arrives, for how long. If your savings would cover six months and your sick pay covers six months, you have a year of runway and a strong argument for a long deferred period and a low premium. If you're self-employed with three months of savings, the case is urgent.

This article is for general education only and isn't personal advice or a recommendation of any product. Policy terms vary substantially between insurers and the definitions matter — worth having a policy read properly before you rely on it.