What is the difference between income protection and life insurance?

The difference between income protection and life insurance is that one pays out to you during your working life and the other pays out to your loved after your passing.

  • Income protection - Helps you to replace lost income if you’re unable to work due to illness or injury
  • Life insurance - Provides loved ones with a lump sum pay out to help them continue their current lifestyle when you’re no longer around
Income protectionLife insurance
Can pay out to you if you can’t work due to illness or injuryCan pay out to your loved ones after your passing
Pays out in monthly payments (to mimic an income)Pays out in one lump sum payment
Cover amount (or benefit amount) can be up to 70% of your usual earningsCover amount (or sum assured) is decided by you at the point of application and can be up to £1,000,000
You can choose between short term or long term cover (this refers to how long you’ll receive payments for)You can choose between term-based or whole of life cover
Can be taken out through Reassured Advice from 20p-a-dayCan be taken out through Reassured Advice from 20p-a-day


Despite these policies covering you for different scenarios, 39% of people wouldn’t take out income protection if they had an existing life insurance policy in place[1].

However, it can be beneficial to have both in place (if your budget allows) to provide a comprehensive cover solution for you and your family should the unexpected happen.

Reassured Advice can help you compare both income protection and life insurance quotes from just 20p-a-day.

This way, you can talk through your needs with an expert and be presented with all your options to help you find your ideal cover solution.

Whether that’s income protection, life insurance or both. So why not get in touch?

Keep reading this complete income protection vs life insurance guide to help you decide which policy option is best for you…

Do I need income protection or life insurance?

Whether you need income protection or life insurance will be down to your personal circumstances.

As each policy will cover you for different circumstances, it can be beneficial to take out both polices simultaneously (if your budget allows).

An income protection policy to cover you during your working life and a life insurance policy to protect your loved ones after your passing.

Income protection insurance benefits

Who needs income protection?

Income protection can help anyone who works by replacing lost income. However, it can be particularly beneficial for:

  • Self-employed workers who don’t receive sick pay
  • Those who don’t receive a sick pay scheme from an employer
  • Those who don’t have personal savings to fall back on
  • Those with financial commitments who want to ensure they can keep up with payments no matter what
  • Those with a family who want to protect their daily living costs
Life insurance benefits

Who needs life insurance?

Life insurance can alleviate loved ones from financial stress after your passing. It can be beneficial for:

  • Those with a family who want to allow them to continue their current lifestyle
  • Those with a mortgage who want to allow their surviving partner or family to remain in the family home
  • Those with shared assets to allow the remaining partner to keep up with payments
  • Those who want to provide an inheritance to their children or grandchildren

Contact Reassured Advice to compare both income protection and life insurance quotes to find the best policy (or policies) to meet your needs.

How much income protection insurance do you need?

Enter your monthly financial commitments to calculate the level of income protection cover you require.

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£723 a month is the average monthly mortgage payment in the UK, with the average monthly rental price coming in at £700.

The majority of our monthly income will go towards rental or mortgage payments.

For this reason, it’s essential to have precautions in place to ensure you could keep up to date with your payments if you weren’t receiving your usual income.

Monthly income protection payments can help to cover this large expense and ensure you can stay in your home.

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According to the Money Advice Service, the average household spends £340 a month on household bills.

This includes electricity, gas, TV and broadband.

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Childcare costs are on the rise with it now costing £137.69 per week for part-time nursery for a child under the age of two.

That’s over £550 per month - is this an amount you’d be able to keep up with if you were unable to work?

Becoming ill could also result in the need for additional childcare while you attend doctors’ appointments or medical treatment.

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The average household in the UK spends around £97 a week on their food shop, totaling £388 a month.

While this may seem like a small amount in comparison to some of the other expenses mentioned, the food shop is often where we try to scrimp and save when we fall on hard times.

Income protection can take care of the cost of your weekly food shop, as well as many other essential costs.

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At the beginning of 2020, credit card debt in the UK was at £2.1 billion, with almost 27 million UK residents in some kind of debt.

Becoming unable to work could make it hard to keep up with credit card or loan payments (including car finance or other financed goods).

Failure to keep up with payments could result in additional interest being incurred or late fees issues - resulting in a higher total needing to be paid.

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The average spent on public transport each month comes to an average of £94.

This includes the cost of public transport, as well as petrol and diesel vehicles.

While this amount may reduce while you’re unable to work as you won’t need to commute there may be additional spending on public transportation if your illness or injury leaves you unable to drive.

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Your total cover estimate

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Let us find your best quotes.

Life insurance, critical illness cover and income protection

These policies are often talked about together, but there are some key differences you should be aware of:

  1. Life insurance - Pays out a lump sum to loved ones upon your passing
  2. Critical illness cover - Can be taken out as a standalone policy or added to a life insurance policy for an additional cost. It will provide you with a lump sum pay out if you’re diagnosed with a serious illness (that’s listed within your policy)
  3. Income protection - Will pay out a percentage of your income if you’re unable to work due to sickness or accident

While life insurance differs as it pays out upon your passing, income protection and critical illness cover are similar in the fact that they pay out if you experience a period of serious illness.

While they have some similarities, the two options are actually quite different. Critical illness cover will pay out to you in a lump sum, whereas income protection will pay out in monthly instalments to mimic an income.

To find out more you can read our income protection vs critical illness cover article »

How does income protection work?

Up to 70% of your income can be protected if you’re unable to work due to sickness or injury.

Your policy can cover you for as long as you need. Although, your policy must cease by the time you’ve reached a specified age (with most providers this is around 70 years old).

You’ll need to pay a monthly premium in order to keep your policy valid. Most income protection policies come with either guaranteed (stays the same), reviewable (can increase over time due to certain criteria) or age-banded (increases every year as you age) premiums.

Your policy will come with a definition of incapacity, this refers to what makes you eligible to make a claim. Most policies come with an own occupation definition, which will allow you to claim if you’re unable to do your specific job.

After making a claim, you’ll receive payments for a specified period of time. This could be on a short-term basis (up to a maximum of 12 - 24 months) or a long-term basis (which could last up until retirement if you’re unable to work again).

When making a claim you’ll need to wait for your deferred period to pass. You must still be unable to work once your deferred period has come to an end in order for your payments to commence.

It can be possible to make multiple claims throughout the lifetime of your policy. However, you may need to have returned to work for a set period of time before another claim can be made.

Essentially, if you become incapacitated and can’t work, you can make a claim and a percentage of your income will be paid out.

Payments will continue until you return to work, until your payment period comes to an end, until your policy expires or until you retire (whichever happens first).

What is income protection infographic desktop

How does life insurance work?

Life insurance can pay out a cash lump sum to your loved ones after your passing.

This will allow them to take care of key financial commitments, such as rent or mortgage payments (so they can remain in the family home), living costs, the cost of your funeral and much more.

There are a variety of policies to choose from, including term-based cover which will provide cover for a specified period of time or whole of life insurance which will cover you for life.

You can choose a policy length to meet your needs. this could be up to 40 years with a term-based policy, or for the rest of your life with whole of life insurance.

You’ll need to pay a monthly premium in order to keep your cover valid. The price you pay will be determined by personal factors (such as your age and medical history, smoking status etc) as well as policy details.

You can also choose the sum you would like to be paid out to your loved ones. This could be a maximum of £1,000,000. However, this is likely to be much more than most require.

If you pass away while your policy is active, your loved ones can make a claim with your provider. Upon receipt of a successful claim, the funds from the policy will be paid out.

Why not check out our in-depth how life insurance works in the UK article to find out more »

Can you get life insurance and income protection together?

Yes, you can take out a life insurance and income protection policy simultaneously.

While you can’t add income protection to a life insurance policy, if your budget allows, you can take out both policies separately at the same time.

In the event that you become too ill or injured to work, income protection could help you to:

  • Cover mortgage payments or ongoing rent
  • Pay for household bills (gas, electric, water, broadband etc)
  • Pay for childcare
  • Cover transportation costs
  • Keep up with loan or debt payments (credit cards or car finance payments)
  • Do the weekly food shop
  • Cover leisure costs

In the event of your passing, a life insurance pay out could be used by your loved ones to:

  • Cover mortgage payments or ongoing rent
  • Cover the cost of your funeral
  • Pay for additional childcare costs
  • Cover daily living costs and any future living costs
  • Pay off outstanding debts in your name
  • Receive an inheritance to spend as they wish

What is the cost of life insurance vs income protection insurance?

Both life insurance and income protection can be secured from just £5 a month through Reassured Advice.

However, with both policy types, the exact price you pay will depend on certain key information.

This includes both details about your circumstances and your chosen policy details.

Details taken into consideration to calculate your income protection premium include:

  • Age
  • Health and wellbeing
  • Smoking status
  • Occupation
  • Length of payment period
  • Length of deferred period
  • Definition of incapacity
  • Premium payment type

Details taken into consideration to calculate your life insurance premium include:

  • Age
  • Health and wellbeing
  • Medical history
  • Smoking status
  • BMI
  • Policy type
  • Level of cover
  • Length of term

The table below shows a price comparison between income protection vs life insurance:

AgeIncome protection price per monthLife insurance price per month
20£5.85£3.55
25£6.14£4.31
30£6.41£4.34
35£6.88£5.77
40£8.60£7.97
45£11.00£11.43
50£14.63£16.89

Income protection quotes are based on a non-smoker, in good health with an annual income of £30,000. The policy provides cover until age 65 and has a 3-month deferred period

Life insurance quotes are based on a non-smoker in good health for a level term life insurance policy for £100,000 of cover over a 20-year term

Compare income protection and life insurance quotes through Reassured Advice to find the most affordable solution.

What are the pros and cons of income protection?

The main benefit of income protection is that it can help you to replace lost income during periods of ill health or injury.

Up to 70% of your usual income can be paid out (on a monthly basis), which can be spent on whatever you would use your earnings for.

This means you don’t have to dip into savings, make cutbacks to your daily life or rely on others.

ProsCons
Can help you to replace lost income if you become incapacitated and can’t earn your usualWon’t pay out to you if you pass away (although some policies may offer a small lump sum if you pass away while your policy is active)
Up to 70% of your income can be paid outWon’t pay out the full amount of your income
Pays out in monthly instalments to help with budgetingMonthly payment may not be sufficient to cover larger expenses
Payments aren’t tied to a specific financial commitment so you can spend them as you wishIf you have a high-risk occupation (or if other high-risk factors are identified) you may pay more for your cover
Can be possible to make multiple claims throughout the policy lifetime
Can be secured through Reassured Advice from 20p a day


If you’re unsure if income protection is the right option for you, why not speak to a member of the Reassured Advice team?

The team can be on hand to answer any questions, help you through the application process and provide you with quotes from all the UK’s best providers.

What are the pros and cons of life insurance?

The main benefit of life insurance is that it can provide you with peace of mind that your loved ones will be taken care of financially after your passing.

Having to make life changes to meet a new budget can be stressful, especially at a time of grief.

A life insurance pay out can provide the funds to ensure that mortgage payments or rent is covered, as well as other daily living costs - allowing your family to carry on with their current lifestyle.

ProsCons
Can provide essential financial support when loves ones need it mostLoved ones will only receive a payment if you pass away while your policy is active
A lump sum pay out will be made which can help to cover large expenses (such as a mortgage, funeral costs and/or living costs)It can be possible to outlive the term of your policy (meaning no pay out is made)
There are a variety of policies available (such as term life insurance, whole of life insurance and over 50 life insurance)Can be possible to pay more into the policy (for example, if you take out whole of life insurance at a young age)
Extra safety nets of protection can be added to your policy (such as terminal illness cover or critical illness cover)You may experience higher premiums if high risk factors are identified during the application
Can be purchased through Reassured Advice from 20p-a-day


Reassured Advice can help to provide you with all the information you need to make an informed decision as to whether life insurance is right for you.

They can also provide you with quotes from all of the UK’s leading providers.

Compare income protection and life insurance quotes

One policy isn’t necessarily better than the other and it can be possible to take out both income protection and life insurance simultaneously.

Speaking to an expert is the best way to determine the best option for you.

The team at Reassured Advice can help you compare income protection and life insurance quotes from all major UK providers, while answering any questions you may have.

So why not get in touch to find your ideal cover solution? Quotes are personalised, without obligation and fee-free.

The best part is, both life insurance and income protection can be secured from as little as £5 a month.

Sources:

[1] https://www.thisismoney.co.uk/money/lifeinsurance/article-7907427/If-life-insurance-youre-likely-income-protection-need-both.html

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