What is the difference between income protection and life insurance?

The key difference is that income protection pays out monthly (to mimic an income) while you’re unable to work, while life insurance pays out a lump sum after your passing.

The table below answers key questions about each policy to show how they differ:

Income protectionLife insurance
When will it pay out?If you’re unable to work due to illness or injuryIf you pass away during the policy term
What will it pay out?Monthly paymentsA lump sum payment
Who benefits from the pay out?The funds will be paid to you to help cover key living costs/financial commitmentsThe funds will be paid to your loved ones to help them cover essential costs
How much will it pay out?Benefit amount (cover amount) could be up to 70% of your usual incomeCover amount (sum assured) could be a maximum of £1,000,000
What policy options are there?Long-term or short-term policy options availableTerm-based or whole of life options are available
How much does it cost?Available from 20p-a-day through ReassuredAvailable from 20p-a-day through Reassured

Essentially, one protects your earnings during your working life and the other protects your loved ones when you’re no longer around.

When using a broker (like Reassured) a helpful expert will be on hand to explain the full details of each policy, take your personal circumstances into consideration and provide recommendations on what’s best for you.

That could be income protection, life insurance or a combination of the two.

Simply get in touch today for your fee-free quotes.

Do I need both income protection and life insurance?

It’s a common misconception that if you have one policy in place, you don’t need the other.

In fact, 39% of people say they wouldn’t take out an income protection policy if they had an existing life insurance policy in place[1].

However, 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 your income and a life insurance policy to provide your loved ones with a lump sum payment after your passing.

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

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
  • Those who don’t receive full sick pay from their employer
  • Those who don’t have personal savings to fall back on
  • Those with a family and/or financial commitments to take care of
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
  • Those with a mortgage and/or other debts
  • Those who want to help protect loved ones from funeral costs
  • Those who want to provide an inheritance to their children or grandchildren

By working out what you’d like to protect, you can establish what form of cover might be best suited to your needs.

Alternatively, talking to an expert like Reassured, means you can receive recommendations based on your personal circumstances.

How much income protection insurance do you need?

Enter the fields which apply to you to calculate the level of income protection cover you might require to help cover key costs.


£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.


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

This includes electricity, gas, TV and broadband.


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.


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.


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.


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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How does income protection work?

Benefit Amount

Income protection works by paying out a percentage of your income if you’re unable to work due to illness or injury. Most commonly, between 50% - 70% of your annual income can be paid out.

Definition of Incapacity

Your illness/injury will need to match the definition of incapacity listed in your policy in order for a claim to be successful. Most policies come with an ‘own occupation’ definition which means you can claim for any illness/injury which prevents you from doing your own job.

Deferred Period clock

Once a claim has been made, you’ll need to wait for your deferred period to end (this is the time in between making a claim and the policy paying out). Typical deferred periods include 4, 8, 13, 26 and 52 weeks. If you’re still unable to work once this time has passed, payments will commence.

Typically, when applying for income protection there are two policy options available:

Long-term income protection vs life insurance

Long-term income protection

Long-term income protection has the potential to continuously pay out to you until you return to work or until the policy comes to an end.

  • Full term payment period
  • Pays out for illness and injury
  • Premiums tend to be more expensive than short term cover
  • Ideal for those who don’t receive full sick pay from an employer
Short-term income protection vs life insurance

Short-term income protection

Short-term income protection will pay out for a limited term. Typically, up to a maximum of 1, 2 or 5 years per claim period.

  • Limited payment period of 1, 2 or 5 years
  • Pays out for illness and injury
  • Premiums tend to be cheaper than long term cover
  • Ideal for those on a tight budget
What is income protection infographic desktop

How does life insurance work?


Life insurance works by paying out a lump sum to your loved ones if you pass away during the policy term.

Planning the funeral your way

During the application process, you’ll choose a level of cover (sum assured) and a term length that best meet your needs and budget. You‘ll then need to pay a monthly life insurance premium to keep cover valid.

Family Protection

After your passing, your loved ones can make a claim and receive a pay out to help them cover essential financial commitments and other costs (such as mortgage payments, family living costs and the cost of your funeral).

There are multiple life insurance policies available. Most commonly you have a choice between term-based cover and whole of life cover.

Term based life insurance vs income protection

Term-based life cover

Term-based life insurance lasts for a specified period (up to 40 years) and will pay out to your loved ones if you pass away during this time.

Often a popular choice with young families to help protect living costs and large expenses, such as a mortgage.

Options available include level and decreasing term life insurance.

Whole of life insurance vs income protection

Whole of life cover

Also known as life assurance as a pay out is assured (guaranteed) to your loved ones upon your passing.

As cover lasts for life, it’s often a popular choice for those later in life to help cover funeral costs and/or provide an inheritance for loved ones.

Options available include whole of life insurance and over 50 life insurance.

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?

Income protection and life insurance typically can’t be taken out as a combined policy.

However, 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 help 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.

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

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

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

  • Age
  • Health and wellbeing
  • Medical history
  • BMI
  • 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
  • Occupation
  • 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 month
Life insurance
price per month

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 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 could be paid out (on a monthly basis) to help you cover key financial commitments.

This could reduce the need to dip into savings, make cutbacks to your daily life or rely on others.

Can help you to replace lost income if you become incapacitatedWon’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 could 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 lifetimeWon’t pay out for unemployment (including redundancy)
Can be secured through Reassured 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 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 knowing that your loved ones would be protected financially if the worst were to happen.

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

A life insurance pay out can help to 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.

Can provide essential financial support when loved ones need it mostLoved ones will only receive a payment if you pass away while your policy is active
Pays out a lump sum pay out 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 from 20p-a-day

Reassured 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

When deciding between income protection vs life insurance, it doesn’t always have to be one or the other.

If your budget allows, it can be possible to secure both policies simultaneously to provide a comprehensive cover solution.

Reassured can take your personal circumstances into consideration and provide you with expert recommendations on what’s right for you.

A friendly member of the team can also help you compare quotes from all major UK providers, to help you find the best available deal.

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 20p-a-day.


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

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