What is Income Protection Insurance?

Full Definition

Income Protection Insurance is a personal policy you buy to replace part of your earnings (typically up to around 50% to 65% of gross salary) if illness or injury stops you working. After a chosen deferred period - the waiting time before payments start, often 4, 13, 26 or 52 weeks - the policy pays a regular income until you recover, retire or the policy ends. Because you pay the premiums from your own taxed income, the benefit is normally paid free of UK Income Tax and National Insurance. Premiums depend on your age, occupation, health, the deferred period and how the policy defines incapacity (own occupation versus any occupation). Unlike critical illness cover, which pays a lump sum for specified conditions, income protection pays an ongoing income. It matters because Statutory Sick Pay and savings rarely cover the bills during a long absence, and self-employed people have no employer sick pay at all.

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