Benefits of income protection insurance

The main benefit of income protection is that it provides monthly payments to replace your income while you’re unable to work due to illness or injury.

A percentage of your usual earnings (often up to 70%) will be paid out to help you cover your daily living expenses.

While many UK workers benefit from sick pay, this is only paid for a set period and there are some workers that don’t receive this benefit at all (such as the self-employed).

Income protection can provide reassuring peace of mind that you and your loved ones are taken care of financially during your working life.

5 key benefits of income protection:

  1. Receive regular monthly payments
  2. Payments aren’t tied to a specific financial commitment
  3. Provide your own sick pay (if you don’t receive this benefit from an employer)
  4. Give yourself the recovery time you need
  5. Protection against a wide range of illnesses/injuries

Compare income protection quotes from the whole of the market using the fee-free service offered by Reassured.

A friendly member of the team can provide you with personalised recommendations and the best quotes to meet your needs.

Simply get in touch today.

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What is income protection?

Income protection benefits

Income protection key points:

  • Protect up to 70% of your usual earnings (depending on the insurer)
  • Monthly payments are tax-free
  • Covers a wide range of illnesses and injuries
  • Doesn’t cover unemployment
  • Can help to cover monthly rent/mortgage costs, household bills and other living costs
  • Premiums start from 20p-a-day through Reassured ‡

Income protection is an insurance policy that covers your income if you’re unable to work due to illness or injury.

A percentage of your usual earnings will be paid, on a monthly basis, for a specified period to help you take care of your financial commitments.

This could be on a short-term basis (for a maximum of 1, 2 or 5 years) or a long-term basis (up until the policy comes to an end).

When making a claim, you’ll need to wait for a specified period to pass before you’ll receive payments.

This is known as the deferred period. If you’re still unable to work after this time, payments will commence.

You’ll receive payments until you return to work, your cover expires or you retire. Whichever happens first.

Compare income protection quotes through Reassured to find a great deal on your ideal policy.

Do I need income protection?

Whether you need income protection will ultimately depend on your personal circumstances.

However, anyone earning an income could benefit from having this form of cover in place should the unexpected happen.

In recent years the number of people who are considered ‘economically inactive’ due to long term illness has risen to 2.5 million[1], highlighting the likelihood of falling ill during your working life

Do you have savings?

Do you have your own savings that you could fall back on or are you part of the 34% of UK residents with either no savings or less than £1,000 in savings[2]?

Do you receive sick pay?

You may receive sick pay from your employer, however not everyone is entitled to the same benefits.

Does your employer offer a generous company sick pay scheme or do you receive statutory sick pay (£109.40 per week for up to 28 weeks[3])?

Are you self-employed?

If you’re self-employed you won’t benefit from sick pay and may need to rely on government support such as ESA (Employment and support Allowance).

How much you get will vary depending on certain factors but could be up to £84.80 per week or £129.50 per week if you’re unable to return to work[4].

By assessing your personal circumstances and available funds you can estimate what you’d need to take care of and how much you’d need to do so.

If you’d struggle to make ends meet, income protection could help to provide you with a much needed financial lifeline.

How much income protection do you need?

Enter your financial commitments to work out your ideal income protection benefit amount. Enter the fields which apply to you for an instant calculation.

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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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What are the benefits of income protection insurance?

There are many benefits to securing income protection insurance. Below we have highlighted our top 5 benefits:

Icon green tick Receive regular monthly payments

If you needed to take an extended period off work due to long-term sickness or injury, you may worry about how you’d keep up with your financial commitments.

Without income protection in place, you’d have to rely on sick pay (if you receive this benefit), dip into your savings and/or borrow from family/friends.

However, with income protection in place, you can rest assured that you can still receive a percentage of your income while you’re off work.

Up to 70% of your usual income could be paid out in monthly (tax-free) payments.

You’ll receive these payments until you’re ready to return to work, for the duration of your payment period or until you retire.

Icon green tick Payments aren’t tied to a specific financial commitment

With some policy types such as mortgage payment protection insurance (MPPI) or payment protection insurance (PPI), the payments you receive are used to cover a specific financial commitment.

For example, with mortgage payment protection insurance, the payments typically go straight to your mortgage lender to cover this key expense - meaning you can’t use the funds for anything else.

However, with income protection, the payments are paid directly you, so you have the freedom to spend them on whatever you see fit.

This could help you to cover:

  • Mortgage or rent payments
  • Household bills
  • Daily living costs
  • Debt or loan payments
  • Leisure costs

Whatever your usual monthly wage would go towards, income protection could help to cover it.

Icon green tick Provide your own sick pay

Not all workers are entitled to sick pay benefits from an employer, such as the 4.24 million self-employed workers in the UK[5].

While you may have access to ESA, would £84.80 (or £129.50 if you’re unable to return to work) per week be enough to help you cover your financial commitments and living costs?

By securing personal cover, you can be in charge of providing your own sick pay and you can choose the policy terms that best meet your needs.

This can provide you with peace of mind that you can still receive an income while you’re unable to work.

Alternatively, if you do receive sick pay, an income protection policy could help to ‘top up’ this benefit.

If you only receive statutory sick pay, you could use an income protection policy to provide an additional level of protection once your sick pay has come to an end.

Icon green tick Give yourself the recovery time you need

If you’re off work, and worrying about your finances, you may feel forced into going back to work before you’re truly ready as a way to minimise the loss of income.

But, with an income protection policy in place, your policy could pay out to you until you’ve made a full recovery.

In fact, when securing a long-term policy, you could still receive an income for the rest of your working life even if your incapacity meant you were unable to return to work.

Icon green tick Protection against a wide range of illnesses/injuries

Unlike other forms of cover, you don’t need to be diagnosed with a specific illness (which meets the insurers definition) to make a claim.

You can claim for any illness that prevents you from working so long as it meets the definition of incapacity listed in your policy.

Thankfully, most policies come with an ‘own occupation’ definition, which means you can claim for any condition which prevents you from doing your own job.

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What are the disadvantages of income protection?

While we have presented you with the benefits of income protection, before securing a policy it’s important to weigh up both the pros and the cons to establish if cover is right for you.

Below we have listed the disadvantages of income protection:

Icon ruby cross It doesn’t protect your full income

An income protection policy won’t pay out your full income - it will pay out a percentage. This percentage can vary but, typically, most insurers offer to pay out between 50% - 70% of your usual earnings.

While this can help to keep you afloat, it may not cover all your financial commitments (depending on your personal circumstances).

Icon ruby cross It doesn’t cover unemployment or redundancy

You’ll be covered for illness and injury under an income protection policy. You won’t be able to claim for any form of unemployment, including involuntary redundancy.

If you’re looking for protection against unemployment, you may wish to consider another policy type.

Icon ruby cross Any pre-existing conditions could be excluded

If you have any medical conditions, you’ll need to disclose these during the application process. Depending on the type and severity of your condition, it could be excluded from your cover.

This means if you need to take time off as a result of your condition, you won’t be able to make a claim. Illnesses/injuries related to your condition may also be excluded.

When securing cover through a broker not only will you be provided with all the information you need to know, but you can also ask as many questions as you need to fully understand what your will policy cover.

Reassured are dedicated to finding you the right policy for your needs at the best price.

Simply get in touch for your fee-free quotes and personalised recommendations.

How are the benefits of an individual income protection policy taxed?

Income protection benefits are generally tax-free.

This is because the premiums are paid for out of your own pocket, which is money that would have already been taxed by your employer or by self-assessment (if you’re self-employed).

You also don’t have to pay any national insurance contributions for your policy.

What is the maximum income protection benefit?

70% of your usual income is typically the maximum amount that can be paid out by an income protection policy.

However, many insurers also have a specified maximum benefit amount they will pay out per month/year.

Below is a list of some popular UK insurers and their maximum benefit amounts:

InsurerMaximum benefit amount
AIG logo £20,833 per month
aviva logo £20,000 per month
Legal & General logo £20,000 per month
The Exeter logo £10,000 per month
British Friendly logo £4,750 per month


As you can see from the table above, the maximum benefit amount can vary between insurers.

This highlights the importance of comparing multiple quotes to secure the policy that will pay out the highest amount of your income.

Comparing quotes through a broker, like Reassured, means you’ll have a dedicated expert to do the hard work for you.

A friendly member of the team will find the best options to meet your needs and find you the cheapest quote.

Simply get in touch for your fee-free quotes.

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Is income protection better than life insurance?

One isn’t necessarily better than the other as each policy covers you for different circumstances.

An income protection policy provides cover during your working life and can pay out a percentage of your income if you’re unable to work.

Whereas life insurance can pay out a lump sum to your loved ones after your passing.

If its within your budget, you could secure both policies simultaneously to provide a comprehensive cover solution.

Income protectionLife insurance
Pays out to you during your working lifePays out to your loved ones after your passing
Payments are made monthly (to mimic your income)A lump sum payment is made to your loved ones
Could help you to keep up with essential living costs while you’re off workCould help loved ones to cover financial commitments and other key costs (such as your funeral)
Short-term & long-term options availableTerm-based & whole of life options available
Maximum benefit up to 70% of your usual incomeMaximum sum assured up to £1,000,000
Available from 20p-a-day through Reassured ‡ Available from 20p-a-day through Reassured †


Using the services of Reassured you can compare both income protection and life insurance to find the right solution for your needs.

Why not read our in-depth income protection vs life insurance guide for more information? »

Is income protection worth it?

If you worry about what would happen to your income if you were unable to work, income protection insurance could be beneficial.

Ultimately, whether income protection is worth it for you will depend on your personal circumstances.

Income protection could be particularly beneficial for those who:

  • Don’t have their own savings
  • Are self-employed (and therefore, don’t receive sick pay)
  • Only receive statutory sick pay
  • Are the family breadwinner

If you and/or your family rely on your income to pay for daily living costs and financial commitments income protection could help you to maintain your current standard of living.

Not only could you receive monthly payments when you need them most, but you can live with peace of mind that you’re taken care of no matter what happens.

Why not discuss your needs with a friendly expert at Reassured?

Compare income protection insurance quotes

Now you know the benefits of income protection, why not compare quotes to find your perfect policy?

It’s wise to compare a number of quotes to ensure you’re getting the best deal on a policy.

Reassured can help you compare quotes from the whole of the market, allowing you to secure the right policy to meet your needs at the most affordable price.

You’ll also get personal recommendations on the best option for you from a dedicated expert.

Quotes start from just 20p-a-day, so why not get in touch?

Compare Income Protection Insurance Quotes »

Sources:

[1] https://commonslibrary.parliament.uk/how-is-health-affecting-economic-inactivity/

[2] https://www.money.co.uk/savings-accounts/savings-statistics

[3] https://www.gov.uk/statutory-sick-pay

[4] https://www.gov.uk/employment-support-allowance/what-youll-get

[5] https://www.statista.com/statistics/318234/united-kingdom-self-employed/

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