Income protection: insuring your salary
Income protection is the cover most people overlook and many advisers rate first. It replaces part of your income if you can't work due to illness or injury. Here's how it works and how to size it.
What income protection does
Income protection insurance (IP) pays a regular, tax-free monthly income if illness or injury stops you working — for almost any medical reason, not just a defined list. Payments start after a chosen deferred period and continue until you recover, the policy term ends, or you retire (for a full "long-term" policy). Unlike critical illness, it isn't a one-off lump sum and isn't limited to specific conditions, which is why it covers the widest range of situations.
Why SSP isn't enough
If you can't work, Statutory Sick Pay is just £118.75 a week (2025/26) for up to 28 weeks, and only if you qualify. Some employers add a few weeks or months of full pay, but after that most people fall back to SSP or nothing. Against a typical mortgage and bills, that leaves a serious shortfall — which is exactly the gap income protection fills.
Benefit amount and the deferred period
Insurers usually cap the benefit at around 60% of your gross income (it's tax-free, so that broadly matches your take-home). Aim to cover your essential outgoings up to that cap. The deferred period — how long you wait before payments start — is the big premium lever: setting it to match when your employer's sick pay ends (say 13 or 26 weeks) cuts the cost substantially versus a 4-week wait.
Match the deferred period to your sick pay
Own occupation and payment terms
Choose "own occupation" cover where possible — it pays out if you can't do your job, rather than any job, which is a much stronger definition. Also check whether it's a full-term policy (pays until recovery or retirement) or a cheaper budget/short-term version that only pays for a year or two per claim. Full-term own-occupation cover is the gold standard.
Common mistakes
- Relying on SSP or savings. SSP is minimal and savings run out fast. IP is the only sustainable replacement for a lost salary.
- Picking a short deferred period for no reason. A longer wait that matches your employer sick pay is much cheaper.
- Choosing "any occupation" cover. It only pays if you can't do any job at all — far weaker than "own occupation".
- Over-insuring above the cap. Insurers limit benefit to ~60% of gross; paying for more is wasted.