What is income protection insurance?
Income protection (sometimes called permanent health insurance or PHI) is an insurance policy that pays you a regular monthly income if you're unable to work due to illness or injury. Unlike critical illness cover (which pays a lump sum), income protection provides ongoing income replacement for as long as you can't work.
How does the payout work?
After your chosen waiting period (called the deferred period) expires, your policy begins paying a monthly benefit. This is typically 50–70% of your pre-illness income, paid monthly, tax-free. Payments continue until you return to work, the policy term ends, or you reach retirement age.
What does the deferred period mean?
The deferred period is the waiting time between becoming unable to work and your first payment. Common options are 4, 8, 13, 26, or 52 weeks. The longer the deferred period, the lower your premiums — because you're self-insuring for longer.
Match your deferred period to how long you could realistically survive on savings, employer sick pay, or SSP before you need the policy to kick in.
What's the "own occupation" definition?
This is the most favourable claims definition — it means the policy pays if you can't do YOUR specific job, not just any job. For example, a surgeon with a hand injury might not be able to operate but could theoretically do admin work. Under "own occupation" cover, they'd still be able to claim.
Avoid "suited occupation" or "any occupation" definitions where possible — they're much harder to claim on.
What does income protection cover?
- Physical illness and injury
- Mental health conditions (including depression, anxiety, stress)
- Musculoskeletal conditions (back pain, joint problems)
- Cancer and serious illnesses (though critical illness cover provides a lump sum)
What does income protection not cover?
- Redundancy and unemployment (standard policies)
- Pre-existing conditions (usually excluded)
- Voluntary absence from work
- Criminal injury (in some policies)
Short-term vs long-term income protection
Short-term policies (sometimes called "budget" or "accident and sickness") pay for a maximum of 12–24 months. Long-term policies pay until you recover, retire, or the policy term ends. Long-term cover is significantly more valuable, though more expensive.
How do I claim?
Contact your insurer as soon as you know you'll be unable to work beyond your deferred period. You'll need medical evidence from your GP and possibly specialist reports. Most insurers have dedicated claims teams and aim to pay valid claims quickly.
Frequently Asked Questions
Yes — for personally arranged policies, payouts are tax-free. Executive income protection (arranged by an employer) is paid as taxable salary.
Yes, but the total payout from all policies combined cannot exceed around 70% of your pre-illness income. Insurers check this at the time of a claim.
The sooner the better — premiums increase with age, and any health conditions you develop before taking out a policy may be excluded.