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Income protection insurance

Income Protection Insurance helps support you financially if you have time off work and suffer a loss of earnings because of injury or illness. This type of insurance covers most illnesses that leave you unable to work. For example, it may cover you if you’re unable to work due to a stress-related illness, mental health or a physical health condition. Income Protection Insurance only covers you if you’re unable to work due to illness or injury – it does not pay out if you are made redundant.

How it works

There are different types of income protection insurance, but most are either Individual Income Protection Insurance (often called IP) and Employer Provided Income Protection Insurance (known as Group Income Protection or GIP).

  • Individual Income Protection is taken out by a person seeking to independently protect their income in the event of being unable to work due to illness or injury. This insurance can be bought personally through an insurance broker or independent financial adviser (IFA), or in some cases, direct from an insurance provider.
  • Employer Provided Income Protection Insurance is a policy taken out by your employer to protect your income if you are unable to work due to illness or injury.

If you or your employer buy an income protection policy, you will be paid a monthly income if you find yourself unable to work. You or your employer will pay a monthly premium to your insurer for your chosen policy which will pay out after a pre-agreed waiting period.

Most policies have a pre-agreed waiting period. This is also known as the ‘deferred’ period. The waiting period is the time between being unable to work and the time at which you will begin receiving payments.

Having an income protection policy will mean that you can continue to pay your bills, rent or mortgage if you are unable to work.

Individual income protection

You can apply for income protection if: Rainy day

  • You work in full time employment
  • You work in part time employment
  • You are self employed

You can also apply if you have a pre-existing medical condition, however depending on how serious your condition is, insurers may charge
you more, or they may apply a specific exclusion to your policy.

How to know if Individual Income Protection Insurance is for you? Here are some of the things you might want to consider:

  • What would happen if you became ill and couldn’t afford to pay the bills?
  • If you’re employed, do you have sick pay to fall back on and how long is this paid for?
  • If you’re self-employed, what would you do if you couldn’t work for any reason?
  • Do you have enough savings to cover any personal loan or debt repayments?
  • Do you have any dependents, and will you have enough savings to cover you and your dependants if you are unable to work?

The cost of an Individual Income Protection Insurance product will be determined by the type of policy you want to buy, and your individual circumstances. 

Factors that affect the amount you payFactors that affect the amount you pay are:

  • Type of job
  • Your age
  • The percentage of income you want covered
  • Your health, including any pre-existing conditions
  • When you want your policy to end

Employer provided income protection

Employer provided income protection, or Group Income Protection is insurance cover that employees can only get through their employer. This usually forms part of an employee benefits package.

Group Income Protection allows employers to choose a policy that fits their business needs and budget. Businesses can pick and choose how long a policy runs for, whether it’ll be fully-funded by the company or part-funded by the employee, what percentage of salary it pays out, which employees get it and how long they must be off work before the income benefit kicks in.

Key benefits of this type of protection insurance:

No medical underwriting, which means that individuals with pre-existing health conditions do not have to worry about exclusions related to their conditions and they are also able to receive additional support for these conditions.

Financial peace of mind at an uncertain time, as policies pay a regular income if you are unable to work 

Access to dedicated support from your insurer though Employee Assistance Programmes and access to professionals such as mental health specialists and physiotherapists.

Expert case manager to assist employees to recover and return to work as soon as possible. 

A specific focus on wellbeing with access to preventative support services and tools, helping to empower employees with maintaining their health and wellbeing.

It is advisable to talk to you employer about whether they provide this company benefit and to understand the support services available to you.

Income protection support services

While the financial benefits are usually the main reason why people choose to protect their income, income protection products frequently come with a wide range of added value support. This type of support - for both the employer and employee - usually comes as part of the policy and doesn’t cost anything extra.

Some of these support services can include:

Preventative measures

Many insurers provide specialist support services to policy holders, which enables employees of company schemes or individual policy holders to receive rapid access to assessment for a range of health issues including muscular problems and mental health conditions. Policy holders will often have a dedicated case manager assigned to them to take them through the whole process. This can include a tailored treatment plan and access to a wide range of specialists including psychologists, physiotherapist and other qualified professionals.

Accessing support services

Most insurers have dedicated Employee Assistance Programmes which provide access to support services 24 hours a day. These can offer support on a range of topics such as finances matter, relationships and legal issues, as well as dedicated mental health counsellors. These services can be accessed through dedicated helplines as well as through interactive online services..

Rehabilitation services

Rehabilitation services are at the heart of most protection insurance products. Many insurers offer access to rehabilitation teams who help manage an employee’s or individual policy holder's sickness absence. They often offer access to counselling and a wide range of other services, including assistance with HR issues and legal assistance. Many income protection policies have specific mental health pathways for people to get the tailored assistance they need.


Percy The Protection Calculator

If you have any concerns about your potential financial situation in the event of being unable to work due to illness or injury, and would like to have a better understanding of what the government and/or your employer may provide you, why not try Percy The Protection Calculator?

This quick calculator should take you no more than 5 minutes.

The calculator will help you understand the types of payment you may be entitled to in the worst-case scenario, and it may even serve as a bit of a reality check if you find that you don’t have enough income or savings to cover an unexpected life event.

Percy The Protection Calculator Click here to start

If you are interested in understanding more about how falling unexpectedly ill could affect your income, why don’t you follow Jo’s life journey below, and see how her income has been affected as her life circumstances changed.

Jo's Journey

Jo is 20 years old and has just started his/her new job

Jo is 20 years old and has just started a new job. Jo earns £23,000 and is renting a flat in a Leeds. Jo has £5,000 in savings and does not have children or a partner.

Jo's take-home monthly salary after tax is just under £1,600. If Jo fell ill or couldn't work because of injury, this take-home amount would drop by nearly £700 pounds to just 57% of their usual salary. This would subsequently drop by another £110 after 28 weeks.

Fast-forward and Jo is now 28 years old

Fast-forward and Jo is now 28 years old and has climbed the ranks at work, and is saving a good amount each month whilst staying in the same house. Jo is still single and does not have any children. Jo now earns £45,000 and has managed to save £20,000 towards a house deposit over the past 8 years.

Jo’s take-home monthly salary after tax is now approximately £2,700. If Jo fell ill or couldn’t work because of injury, this take-home amount would drop by more than £2,300 to just 18% of their usual salary. This would subsequently drop by another £86 after 28 weeks. This would be a huge drop and Jo would be reliant on savings, or family and friends, to be able to stay in Leeds.

Years later, Jo is now 35 years old and is married to Sam

Years later, Jo is now 35 years old and is married to Sam! Jo’s salary has jumped to £60,000, Sam earns £50,000 and the two of them combined their savings to buy a flat. This means they only have £10,000 left in their rainy-day fund, but do not yet have any children and the mortgage is slightly cheaper than the rent they were paying previously. They are still in the same Leeds Borough.

Jo and Sam’s current combined take-home monthly salary after tax is now approximately £6,650. If Jo fell ill or couldn’t work because of injury, this take-home amount would drop by more than £3,100 to just 11% of their usual salary. Jo would only be entitled to £398 of statutory sick pay and would therefore be reliant on Sam’s salary of £3,000. Overall, the pair would see their take-home pay drop by nearly half. 

A few years on, Jo and Sam are 40 years old and have two children

A few years on, Jo and Sam are 40 years old and have two children. Their salaries have remained the same over the past few years and they’ve not been able to add to their savings because of the costs of having a child. They’re still in their own flat.

Jo and Sam’s combined take-home monthly salary after tax is still approximately £6,650. If Jo fell ill or couldn’t work because of injury, this take-home amount would drop by £3,000 to just 13% of usual salary income. Jo would only be entitled to £398 of statutory sick pay, and as Sam is still in work, they’d only be entitled to an extra £90 in child benefit. They would therefore still be reliant on Sam’s salary of £3,000.

Sadly, Sam left Jo a few years later

Sadly, Sam left Jo a few years later. Jo is looking after their two kids and has spent most of their savings since the divorce. Jo is still earning £60,000 and was able to retain the flat in the divorce settlement.

Jo takes home more than £3,500, but this would drop by £2,260 if it wasn’t possible to work, reducing the take-home monthly amount to 36% of Jo’s normal salary. £756 of the £1,300 Jo would receive is made up of Universal Credit. 

Years on, Jo is not far from retirement

Years on, Jo is not far from retirement. Jo still lives in Leeds, but the kids have moved out/gone to uni. After negotiating a salary of £100,000, Jo has built a nice nest egg of £50,000.

Jo’s household income, which is currently £5,500, would be dramatically affected in the event of falling ill or injured. Jo would only receive the statutory sick pay of £398, resulting in a drop to just 7% of Jo’s usual take-home pay. With the kids out and savings in place – Jo would not receive any funding from Universal Credit.