Income Protection vs Payment Protection Insurance [2025 Guide]

Q: What’s the difference between income protection and payment protection?

The difference between income protection and payment protection insurance (PPI) is that one pays out a percentage of your income, whereas the other pays out to cover a specific debt or loan. While both pay out monthly, rather than in a lump sum, if you can’t work due to illness or injury they work in different ways. Income protection - pays out a percentage of your income, this could be up to 70% of your income before tax (depending on the insurer). The pay out isn’t tied to a specific debt or loan so you can use the payments to cover whatever you need. Payment protection insurance - pays out to protect a specific cost. This could be your mortgage payments, credit card debt, car finance plan or another type of loan. Unlike income protection, some policies also cover unemployment as well as illness and injury. Income protection tends to be a more comprehensive solution as your payments could cover a range of costs (rather than just one loan) and you have the option for long-term cover.

Home
Income protection
Guides
Income protection vs payment protection insurance

What’s the difference between income protection and payment protection?
Income protection and payment protection comparison
What is income protection?
What is payment protection insurance?
Do I need income protection or payment protection?
What are the pros and cons of income protection
What are the pros and cons of payment protection insurance?
Do I have any other options?
Debt and loans in the UK

What’s the difference between income protection and payment protection?

The difference between income protection and payment protection insurance (PPI) is that one pays out a percentage of your income, whereas the other pays out to cover a specific debt or loan.

While both pay out monthly, rather than in a lump sum, if you can’t work due to illness or injury they work in different ways.

Income protection - pays out a percentage of your income, this could be up to 70% of your income before tax (depending on the insurer). The pay out isn’t tied to a specific debt or loan so you can use the payments to cover whatever you need.
Payment protection insurance - pays out to protect a specific cost. This could be your mortgage payments, credit card debt, car finance plan or another type of loan. Unlike income protection, some policies also cover unemployment as well as illness and injury.

Income protection tends to be a more comprehensive solution as your payments could cover a range of costs (rather than just one loan) and you have the option for long-term cover.

Payment protection insurance isn’t something we sell at Reassured but we can help you to compare income protection quotes through our advised team.

Through our advised team you can compare income protection quotes from the whole of the market, allowing you to secure the best available deal on a policy.

Quotes are fee-free and without obligation, so why not get in touch?

Compare Income Protection Quotes »

Income protection and payment protection comparison

	Income protection	Payment protection insurance
What does it cover?	Covers your income if you’re unable to work due to illness or injury	Covers a specific debt or loan if you’re unable to keep up with payments due to being too ill or injured to work or if you’re made involuntarily redundant
What does it pay out?	Could pay out up to 70% of your income before tax (depending on the insurer) in monthly tax-free payments. You could receive payments on a short-term or long-term basis	The amount paid out will usually mirror the cost of your loan payment. You’ll typically receive payments on a short-term basis (for example, 1 year)
Who benefits from the pay out?	The monthly payments will be paid directly to you to spend as you see fit	The payments could be paid to you so you can make your loan payments or they could be paid directly to your loan lender

Keep reading for a deeper dive into both of these policy types to help you work out which might be more suited to your needs…

What is income protection?

Income protection insurance is a financial protection policy that protects your income should you become unable to work due to illness or injury.

You’ll receive monthly payments to mimic your income that can allow you to cover your key monthly costs (such as rent/mortgage payments and household bills).

Falling ill or sustaining an injury is stressful enough, let alone if it puts you in a position where you can’t earn your usual income.

Having income protection in place helps to give you peace of mind that you’re protected should the unexpected happen.

How does it work?

The policy is designed to pay out a percentage of your income, this could be up to a maximum of 70% depending on the insurer.

Should you fall ill or injured during the policy term, you can make a claim.

Your condition will need to meet the ‘definition of incapacity’ listed in your policy in order for a claim to be accepted. Most policies use an ‘own occupation’ definition, which means you can claim if you’re unable to do your specific job.

Once a claim has been made, you’ll need your waiting period to pass before your payments will start. This period will have been agreed during the application process, common waiting periods include 4, 8, 13, 26 or 52 weeks.

Your payments will continue until you recover and return to work or until your payment period comes to an end.

What can it help to cover?

As your monthly payments aren’t tied to a specific cost, you could use them to cover a wide range of living costs and expenses, such as:

Monthly mortgage payments
Rent
Household bills
Credit card bills (or other debt payments)
Transportation (taxi costs, bus fare or filling your car up with petrol)
Other essentials (such as your food shops and phone bill)

Essentially, whatever you spend your usual pay cheque on, income protection could help to cover.

What policy options are there?

When taking out an income protection policy, you typically have the choice between:

Long-term income protection - Long-term income protection can also be known as ‘full term’ cover. This is because your payment period could last for the remainder of the policy term if your illness/injury means you cannot return to work.
Short-term income protection - With short-term income protection your payment period will last for a set period, usually up to 1 or 2 years. This means you’ll only receive payments for this time, even if you need to stay off work for longer. However, it’s possible to make multiple claims during the policy term.

Save money » Compare Whole of Market Quotes

What is payment protection insurance?

Payment protection insurance is financial protection to cover a specific debt or loan.

It was once sold alongside loans such as mortgages, credit cards and finance plans.

It meant that if you were unable to work, you could claim on PPI and then this would help to cover the monthly cost of your loan for a certain time frame (usually up to a year).

Unfortunately, this led to many being mis-sold PPI and caused the product to be seen as untrustworthy. However, it can be a valuable policy to have in place, especially if you worry about how you would keep up with your debts in unforeseen circumstances.

Today, payment protection insurance isn’t sold in the same way. It’s now sold as a standalone policy that you would need to seek out through an insurer.

How does it work?

The policy is designed to cover you for a single debt/loan from a lender. If you become unable to work due to illness, injury or involuntary redundancy you can claim on your policy and receive payments that you can use to make your repayments.

Similarly to income protection, once a claim has been made a ‘waiting period’ will need to pass in order for your payments to begin. If you’re still unable to work after this time period, your payments will commence.

Payments will continue until you recover and return to work or until the payment period comes to an end.

What can it help to cover?

With payment protection insurance you can choose to cover one specific debt or loan. This could be:

Mortgage payments
Credit card debt
Car finance plan (or other finance plan)
A personal loan

What policy options are available?

Payment protection insurance is only available as a short-term policy. This means that payments will only be made for a specified period (usually this is 12 months but could be up to 24 months depending on the insurer).

Do I need income protection or payment protection?

It will depend on your personal circumstances as to which is better for your needs.

If you’d like the freedom to choose what you spend your monthly income payments on, income protection could be more suitable. Whereas if you’d like to protect a specific debt, payment protection insurance could be better suited to your needs.

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.

Your total cover estimate

£ 0

Let us find you our best quotes.

Compare Income Protection Quotes »

What are the pros and cons of income protection?

Pros

Payments don’t have to be used for a specific cost, you have the freedom to use them as you see fit
Payments are tax-free
Flexible terms and conditions, you can set the policy up to best meet your needs and budget
You could be covered for a wide range of illnesses and injuries as there’s no set list within the policy
It can be possible to make multiple claims throughout the policy term
Gives you peace of mind that you’re protected in case of the unexpected

Cons

Pre-existing medical conditions will likely be excluded, meaning you can’t claim for these reasons
It won’t pay out your full income
Payments won’t start straight away. You’ll need to wait for your deferred period to end before you receive payments
Long-term cover can get expensive (as you could be protected for the rest of your working life)

What are the pros and cons of payment protection insurance?

Pros

Helps to protect a specific debt if you worry about how you would make your repayments if you were unable to earn an income
Policies often cover unemployment (involuntary redundancy) as well as illness and injury
Payments can help you to maintain a good credit score by allowing you to keep up with repayments (rather than missing payments and falling into arrears)

Cons

Bad reputation due to mis-selling in the past
Will only cover a specific debt, you can’t use the payments to help with other costs
Only covers you on a short-term basis (often up to a maximum of 1 or 2 years)
Pre-existing medical conditions will likely be excluded, meaning you can’t claim for these reasons

Do I have any other options?

If you want help protecting your income or other key costs but income protection and payment protection don’t sound like the right fit for you, there are some other alternatives:

Critical illness cover - if you were also considering life insurance as a safety net for your loved ones, adding critical illness cover to your policy (for an additional cost) allows you to make an early claim if you’re diagnosed with a serious illness. You’d receive a lump sum pay out which could be budgeted to help with paying off the mortgage or covering any medical fees.
Mortgage payment protection (PPI) – mortgage payment protection insurance is similar to standard payment protection insurance except it’s specifically designed to cover mortgage debt.
Sickness, accident and unemployment (ASU) insurance - ASU is a cheaper form of income protection. It covers you on a short-term basis and pays out a percentage of your usual income (usually capped at a set amount).
Personal savings – if you have personal savings you could dip into this to keep you afloat while you’re unable to work, although if you were off work for a long period of time this could mean you need a considerable amount of money.
Government support - Statutory sick pay is currently £118.74 per week for up to 28 weeks^[1]. While this could help to some extent it might not be enough to cover larger monthly costs. You could also be eligible for some state benefits, depending on your personal circumstances, but this also might not be enough to cover everything you need.

Policies mentioned above such as mortgage payment protection and sickness, accident and unemployment aren’t available through Reassured but we could help you compare life insurance with critical illness cover.

Debt and loans in the UK

The majority of UK adults (around 84%, which is over 4 million people) have some form of credit or loan^[2]
The average personal debt per UK adult (excluding mortgages) is £2,400 (this figure includes credit cards, personal loans and overdrafts). If all household borrowing is included (such as car finance and student loans) the average debt rises to between £7,000 - £8,000^[3]
One in six (16%) UK adults have no savings in place to fall back on^[4]

With these facts and stats in mind, it’s important to consider the debts you have and whether you’d be able to keep up with your monthly payments if the unexpected happened.