Income Protection Insurance
About Income protection insurance
Income protection insurance pays you a regular monthly income if you can't work because of illness or injury. Instead of a single lump sum, it replaces part of your salary, usually between 50% and 70%, and keeps paying until you recover, retire, or the policy ends. The money is yours to spend on the mortgage, the bills, or whatever keeps the household running while you're not earning.
Income protection isn't the same as sick pay from an employer, and it doesn't cover redundancy. It pays out when illness or injury stops you working, however long that lasts, which is what separates it from a one-off payout like critical illness cover. Two policies can look similar and pay very differently, depending on how each one defines being unable to work, and how long the payments last.
At Vintage Wealth Management, we advise on income protection as part of your wider protection plan, alongside your life insurance and any cover you already hold through work. We recommend across the whole market, match the waiting period to your sick pay and savings, and check the small print on how a claim gets paid.
What is income protection insurance and how does it work?
Income protection insurance replaces part of your income when illness or injury stops you working. You choose how much of your salary to cover and how long you'd wait before payments start. If you can't work, you claim, and the insurer pays you a monthly amount until you recover, reach the end of the policy, or retire.
You decide three things when you take out a policy:
How much you're paid. Usually between 50% and 70% of your gross salary. Insurers cap it below your full pay so there's always a reason to return to work.
How long you wait before payments start. This is called the deferred period, and it runs from 4 weeks up to 12 months. A longer wait means a cheaper premium, so people often match it to how long their employer sick pay or savings would last.
How long the payments last. A short-term policy pays for one, two or five years per claim. A long-term policy keeps paying until you recover or retire, which covers you for a serious illness that keeps you off work for years.
The most important choice is how your policy defines being unable to work. There are two versions, and the difference decides whether a claim is paid.
Own occupation pays out if you can't do your own job. A chef who loses the use of a hand, and can no longer cook, would be paid, even if they could do office work.
Any occupation only pays out if you can't do any job at all. That same chef might be turned down, because they could still do some other kind of work.
Own occupation is the stronger of the two. A policy on the any occupation definition often looks cheaper, then pays nothing when it turns out you could work in some other role. We always check which definition a policy uses before recommending it.
Statutory Sick Pay from the government is £116.75 a week and runs for 28 weeks at most. Income protection is built to take over when sick pay stops, and to keep paying for far longer.
What does income protection cover?
Income protection covers almost any illness or injury that stops you doing your job. There's no fixed list of conditions. If a health problem keeps you off work for longer than your waiting period, you can claim.
That's the difference between income protection and a lump-sum policy. A bad back that keeps you off work for months wouldn't trigger a critical illness payout, but it's the single most common income protection claim there is.
The leading reasons people claim, based on 2025 figures from the Association of British Insurers, are:
Back and neck problems, which account for a third of all claims
Mental health conditions like depression, anxiety and stress, at nearly one in five claims
Cancer, and recovery from illnesses like heart attacks and strokes
Because it pays out based on whether you can work, rather than a set illness, income protection covers everyday health problems that other policies leave out.
What isn't covered by income protection?
Income protection covers illness and injury, which leaves a few situations outside it. The main one is redundancy. If you lose your job, income protection won't pay, because it covers you for being too unwell to work, not for being out of work.
| What isn't covered | Why it isn't covered |
|---|---|
| Redundancy or unemployment | It covers illness and injury, not loss of work |
| A pre-existing condition you didn't declare | Anything you had before applying and didn't tell the insurer about |
| Self-inflicted injury | A standard exclusion across every insurer |
| Illness linked to drug or alcohol misuse | A standard exclusion across every insurer |
If you already have a health condition when you apply, the insurer often still covers you and simply excludes claims linked to that one condition. Everything else stays covered. Declaring your full medical history at the start protects the rest of your policy, and means it pays out when you need it.
Income protection for the self-employed
You can get income protection if you're self-employed. For many, it's more important than it is for employees. There's no employer sick pay to fall back on, and no Statutory Sick Pay either, because that only goes to employees. The day you stop working, your income stops.
The cover works the same way it does for anyone else. You choose how much income to protect and a waiting period, and the insurer pays you a monthly income if illness or injury stops you working. The one difference is how the insurer measures your income.
If you're a sole trader, the insurer uses your net profit (the figure you pay tax on, not your turnover). They'll usually ask for your last one to three years of accounts or your SA302 tax calculations. If you run a limited company, they can often base your cover on your salary and dividends together.
Company directors have an extra option. A policy called Executive Income Protection lets your company pay the premiums as a business expense. This is more tax-efficient than paying from your own pocket. Insurers assess self-employed income in different ways, and the gap between them can be wide.
If you're a sole trader or director, our advisers will find the ones that treat your earnings most favourably.
Income protection, private sick pay and other names for it
Income protection is sold under several different names. They all describe the same type of cover. If you come across any of these, you're looking at the same product:
Permanent health insurance (PHI): the older, technical name insurers still use on some policies.
Salary protection or salary protection insurance: named after the salary it replaces.
Income insurance and loss of earnings insurance: other names for the same cover.
Private sick pay: a common everyday name, because the policy does the job an employer's sick pay would.
Private sick pay can mean one of two things. It can be a policy you buy and own yourself, or it can be cover your employer provides, usually called group income protection.
Cover through your employer ends when you leave the job. It doesn't move with you, so if you change jobs or become self-employed, it stops. A policy you own yourself continues for as long as you pay for it, whatever happens to your job.
Permanent health insurance is easy to confuse with private medical insurance, but they're different. Income protection, or PHI, pays you a monthly income when you can't work. Private medical insurance pays for hospital treatment. One pays you, the other pays the hospital.
If you have cover through work and aren't sure what happens to it if you leave, we can check it for you.
Why work with Vintage Wealth Management.
Why work with Vintage Wealth Management.
Vintage Wealth Management has advised on protection and tax-efficient planning for over a decade. We're named in the FT Adviser UK Top 100 Financial Advisers every year since 2021, our team includes Chartered Financial Planners and Fellows of the Personal Finance Society, and we're authorised and regulated by the Financial Conduct Authority.
We have offices in Central London, North West London, Portsmouth, Buckinghamshire, Swindon, and Dublin.
Income protection rarely sits on its own. We look at it alongside your life insurance, critical illness cover, your mortgage and any cover you already hold through work. We recommend from across the whole market, match the waiting period to your sick pay and savings, and read the definition of incapacity so you know the policy will pay when you need it.
When you're ready, get in touch with our advisers.
Frequently asked questions about income protection
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No. Income protection only pays out if illness or injury stops you working. It won't pay if you're made redundant, resign, or are dismissed. Cover for redundancy is a separate product, and it's far more limited. Because it's tied to being unable to work, not to your job itself, it's the reason many people want a policy they own rather than one through an employer.
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No. Income protection is not taxable on a personal policy you pay for yourself. The monthly payments are tax-free, because you pay the premiums from income you've already been taxed on. If your employer pays for the cover through a group scheme, the payments are taxed as income through payroll - the same way your salary is.
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Possibly. Employer sick pay usually runs for a set number of weeks or months, then stops, and Statutory Sick Pay lasts 28 weeks at most. Income protection is built to start when your sick pay ends. It covers you through a long illness that lasts beyond what your employer provides.
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They do different jobs, and many people hold both. Income protection pays a monthly income for as long as illness or injury keeps you off work. Critical illness cover pays a single lump sum if you're diagnosed with a serious condition on its list. One replaces your income, the other clears big costs like the mortgage.
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It depends on the policy. A short-term policy pays for one, two or five years for each claim. A long-term policy keeps paying until you recover, retire, or the policy ends. It can cover you for years if a serious illness keeps you out of work.
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It can. Income protection payments count as income when Universal Credit and other means-tested benefits are worked out, so they can reduce or stop what you receive. Owning a policy means relying on your own cover instead of means-tested support if you're unable to work.
Disclaimer
The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. Income protection pays a monthly benefit only while the policy is in force and a valid claim is being paid. Cover ends if premiums stop, or when the term finishes, and no benefit is returned if you never claim. The amount paid, the waiting period, the benefit period, exclusions and terms vary between insurers and depend on factors including your age, health, occupation and lifestyle at the time of application. The tax treatment of any benefit depends on how the policy is set up and on your individual circumstances. Failure to disclose relevant information when applying may affect a claim. Premium figures quoted are illustrative and not a quotation. The Financial Conduct Authority does not regulate tax planning, trusts, or will writing. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied, is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.