Income Protection FAQs

What is income protection?

Income protection is a type of insurance designed to provide a regular monthly income if illness or injury prevents you from working. Rather than paying a one-off lump sum, it pays an ongoing monthly benefit to help replace lost earnings and support your financial commitments while you recover.

Why is income protection important?

For most people, their ability to earn an income is their most valuable financial asset.

Your income funds:

• Mortgage or rent payments
• Household bills
• Food and living expenses
• Childcare costs
• Savings and investments
• Holidays and leisure activities

If illness or injury prevents you from working, your income may stop but your financial commitments usually continue. Income protection is designed to help bridge that gap.

How does income protection work?

If you become unable to work due to illness or injury and satisfy the insurer's definition of incapacity, you can submit a claim.

Following completion of the deferred period and successful assessment of the claim, the insurer will begin paying the agreed monthly benefit.

Payments will continue until:

• You recover and return to work
• The benefit period ends
• The policy ends
• Retirement age is reached (depending on policy design)

What illnesses and injuries can be covered?

Income protection can cover a wide range of medical conditions, including:

• Cancer
• Heart attack
• Stroke
• Back and neck problems
• Musculoskeletal injuries
• Mental health conditions
• Stress, anxiety and depression
• Serious accidents
• Recovery following major surgery
• Many chronic medical conditions

Importantly, the condition does not need to be life-threatening. The primary consideration is whether it prevents you from carrying out your occupation.

What are the most common reasons people claim?

Many people assume serious illnesses such as cancer account for most claims.

In reality, a significant proportion of claims arise from:

• Mental health conditions
• Stress and anxiety
• Back pain
• Musculoskeletal disorders
• Long-term illness
• Accidents and injuries

These conditions can prevent individuals from working for months or even years.

What is meant by "own occupation"?

Own occupation is generally regarded as the most comprehensive incapacity definition.

You may be eligible to claim if illness or injury prevents you from performing the duties of your own occupation.

Example

A surgeon who develops a hand injury may no longer be able to perform surgery. Even though the surgeon could potentially undertake other types of work, an own occupation policy may still pay because the surgeon cannot perform the specific occupation insured.

What is the difference between own occupation, suited occupation and any occupation?

Own occupation

You are assessed against your actual occupation. This is generally considered the strongest and most comprehensive form of cover.

Suited occupation

You are assessed against occupations reasonably suited to your education, training and experience. This is more restrictive than own occupation.

Any occupation

You are assessed on whether you can perform any form of work whatsoever. This is generally the most restrictive definition and may make it harder to qualify for a claim.

How much income protection can I have?

Income protection is designed to replace income, not create a profit.

Most insurers allow cover of approximately:

• 50% to 65% of gross earned income

The exact percentage depends upon:

• The insurer
• Your occupation
• Whether you are employed or self-employed
• Your earnings structure
• Underwriting criteria

Your adviser will calculate the maximum available benefit based on your circumstances.

Can I insure more than I earn?

No. Income protection is designed to provide financial support when earnings stop. Insurers restrict benefit levels to prevent someone being financially better off when claiming than when working.

What is a deferred period?

The deferred period is the amount of time you must wait after becoming unable to work before benefit payments begin. Think of it as the waiting period on your policy.

Common deferred periods include:

• 1 week
• 4 weeks
• 8 weeks
• 13 weeks
• 26 weeks
• 52 weeks

Generally, the longer the deferred period, the lower the premium.

Why do deferred periods exist?

Many people have other resources available during the early stages of illness or injury, such as:

• Employer sick pay
• Savings
• Emergency funds
• A partner's income

The deferred period allows these resources to be used before the insurance benefit begins.

How do I choose the right deferred period?

The most suitable deferred period often depends upon:

• Employer sick pay arrangements
• Personal savings
• Household finances
• Available support

Example

A common approach is to align the deferred period with the point at which your income would reduce or cease.

Can you give me an example of a deferred period?

If:

• You become unable to work on 1 January
• You have a 13-week deferred period

The insurer would not normally begin paying immediately. Subject to claim acceptance, payments would usually commence after the first 13 weeks of incapacity.

What happens if I recover during the deferred period?

If you return to work before the deferred period has ended, no claim benefit would normally become payable, as the waiting period was never completed.

What is a benefit period?

The benefit period determines how long the insurer will continue paying your monthly benefit following a successful claim.

In simple terms:

• Deferred period = when payments start
• Benefit period = how long payments continue

What benefit period options are available?

Common options include:

• 1 year
• 2 years
• 5 years
• To age 60
• To age 65
• To age 68
• To age 70
• Full term until retirement

Different insurers offer different options.

What happens with a 2-year benefit period?

If your claim is accepted:

• Payments begin following your deferred period.
• The insurer continues paying for up to 2 years.
• Payments stop when the 2-year limit is reached, even if you remain unable to work.

What does "to retirement" or "full term" mean?

A full-term income protection policy can continue paying until:

• You recover and return to work
• The policy expires
• You reach the chosen retirement age

This is generally considered the most comprehensive form of income protection.

Why would somebody choose a short benefit period?

A shorter benefit period often:

• Reduces the premium
• Improves affordability
• Provides protection against short-to-medium-term illnesses

It may be suitable where budget is a key consideration.

Why would somebody choose a longer benefit period?

A longer benefit period provides protection against long-term illness or disability that could prevent someone from working for many years.

Many advisers regard full-term cover as the most robust solution where affordable.

What is the difference between guaranteed, reviewable and age-costed premiums?

Guaranteed premiums

The premium is fixed at outset and does not increase simply because you get older. Premiums generally only change if:

• The policy is altered
• Indexation increases are accepted

Many clients prefer the certainty this provides.

Reviewable premiums

The insurer may review the premium periodically. Future increases are possible, even if your personal circumstances have not changed. Reviewable premiums often start lower but may become more expensive over time.

Age-costed premiums

The premium increases as you age. These policies often offer lower starting costs but become progressively more expensive throughout the policy term.

Which premium structure is best?

There is no universal answer.

Many clients prefer guaranteed premiums for long-term certainty, while others prioritise lower initial costs and accept the possibility of future increases. The right choice depends on personal preferences, budget and long-term objectives.

What is indexation?

Indexation is a feature designed to help your income protection benefit keep pace with inflation.

Each year:

• The insured benefit can increase
• The premium usually increases accordingly
• This helps maintain the real value of your protection over time

Why is indexation important?

Without indexation, inflation can significantly reduce the purchasing power of your benefit. For example, a £2,000 monthly benefit today may buy considerably less in 20 years' time. Indexation helps protect against this erosion.

Do I have to accept indexation increases?

Most insurers provide the option to accept or decline annual increases. Declining increases may affect the future value of your benefit.

Is income protection the same as critical illness cover?

No.

Critical illness cover

• Pays a one-off lump sum.
• Requires diagnosis of a specified condition meeting the insurer's definitions.

Income protection

• Pays an ongoing monthly income.
• Covers a much wider range of illnesses and injuries.
• Focuses on your ability to work rather than a specific diagnosis.

The two types of protection often work well together.

Can I claim more than once?

Yes. Income protection is designed to support multiple claims throughout the policy term, provided you satisfy the claim conditions each time.

Is income protection worthwhile if I have employer sick pay?

Potentially, yes. Many employer sick pay arrangements are temporary and may only last a few months. Income protection can provide support once employer benefits end and may continue until recovery or retirement, depending on the policy selected.

What is the biggest misconception about income protection?

Many people believe claims only arise from severe illnesses such as cancer or heart attacks. In reality, many successful claims result from more common conditions such as:

• Back pain
• Stress
• Anxiety
• Depression
• Musculoskeletal injuries
• Chronic illness

These are often the conditions most likely to stop somebody earning an income.

In summary

Income protection helps protect your most valuable asset: your ability to earn an income.

A well-structured policy can:

• Replace part of your income if illness or injury prevents you from working
• Help protect your home and lifestyle
• Support your family financially
• Be tailored to your budget and needs
• Provide cover for a specific term or until retirement
• Help protect against inflation through indexation

For many people, income protection forms the cornerstone of a comprehensive financial protection plan, offering financial security when it may be needed most.

This guide is for informational purposes only and was accurate at the date of publication. Please seek personalised advice before making financial decisions.