Income protection insurance covers part of your income if you can’t work because you fall ill, have an accident or are made redundant.
There are a range of products and features to meet different needs, so it can be tailored for self-employed workers, those looking for a short-term policy or those who want a cheaper product.
Best UK income protection insurance policies 2020
- AIG life - YourLife Plan Income Protection
- Aviva - Income Protection Options
- British Friendly Society - Protect
- Legal & General - Income Protection Benefit
- LV= - Flexible Protection and Mortgage & Lifestyle Protection Plan
- Nationwide - Income Protection Benefit
- Royal London - Personal Menu Plan
- The Exeter - Income One Plus and Pure Protection Plus
- VitalityLife - A range of Income Protection Cover products
- Wesleyan Assurance Society - Personal Income Protection Plan (dentist, doctors and nurse plans available)
Find out how much many of these policies cost on Activequote.com. Our list is based on the comprehensiveness of each policy as rated by an independent financial research company. It rates policies out of five stars and all the products on our list have a five-star rating.
What is income protection insurance?
Income protection is an insurance policy that pays out a monthly sum if you are unable to work because of illness, injury or unemployment. It is designed to cover living costs while you are not working and will continue to pay out until you return to work. If you can’t return it will continue to pay out until you retire or die.
Policies tend to pay out about 60% to 70% of your gross (pre-tax) monthly earnings into your bank account and it is tax free.
There are different versions of income protection, such as Accident, Sickness, & Unemployment Insurance, and policies can be tailored to your needs. You can set when it starts paying out after you’re off work, the percentage of your earnings it pays out and the kind of work it covers.
Those options will change how much your premium costs, as will factors such as your age, job, health and whether you smoke.
Some people refer to it as employment insurance and mortgage payment protection insurance (MPPI) is a kind of income protection cover.
It is different from controversially mis-sold payment protection insurance (PPI) policies, which only cover debt. Income protection covers a specific loss of income and is paid directly to your bank account to spend in whatever way you need.
Income protection is also different from critical illness cover and life insurance, which offer a one-off lump payment if you develop particular illnesses or if you die.
Read our guide to the best life insurance policies.
Income protection in the UK will pay out for the length of time you are off work and allows you to make new claims the next time you cannot work. This means it can be used as a form of unemployment protection in case an unexpected event hits your family income.
There is a waiting period or deferred period before you start receiving payments from a policy. Most companies allow you to set this waiting period and it can be anything from 4 to 52 weeks.
Income protection insurance is designed to cover a loss of income for whatever reason, whether that's an injury while taking part in a hobby like cycling or an accident on the job. Many families find a loss of income can be felt very quickly; a YouGov poll recently found one in three middle-class people could not pay an unexpected bill of £500 without resorting to borrowing.
Tailor a policy to your needs using Activequote. You can even speak to an adviser over the phone while you’re buying a policy.
How much does income protection insurance cost?
Income protection insurance in the UK can cost as little as £10 a month. Most people pay about £50 to £80 per month. Short term policies are usually more affordable than longer policies.
There are a number of online income protection insurance calculators that can be used to work out how much cover you need, which can also help give you an idea of what your premium may be.
Get an online quote through specialist comparison site Activequote, which lists policies from the best insurers, including AIG, Aviva, Legal & General and Royal London.
Income protection for self-employed people
People who are self-employed or freelance often consider income protection insurance because they might not have employee benefits, such as sick pay, that will protect them if something goes wrong. Most income protection policies are available to people who are self-employed, freelancers and contractors.
Being self-employed shouldn't affect the price of a policy but your profession, along with a number of other factors, will.
Self-employed workers may find it more difficult to make a claim or the process may take a while. It is much easier for someone employed by an organisation to prove they have been made redundant or cannot do their job. That means people who work for themselves could have to provide more evidence to support an income protection claim.
Because of these difficulties and the lack of company benefits it may be worth looking into long-term income protection policies. This is particularly important in relation to accident and sickness cover – if an electrical engineer suffered serious injuries in a motorcycle accident that caused a loss of income for 2 years they wouldn't want to spend 3 months proving a claim for only 6 months' worth of payouts.
Different insurers ask for different forms of proof when you make a claim. Some will only pay out for an unemployment claim if you can show you're on jobseekers allowance and looking for work. If you own your business you could have to provide personal and business account statements to prove a loss of income.
Income protection insurance can be a useful product for self-employed workers but it's always important to speak to an insurer and read the terms and conditions to know what you’re buying. You can speak to an impartial adviser by using Activequote’s phone service.
Do I need income protection insurance?
Choosing income protection insurance is a very personal decision based on your unique circumstances.
A couple of useful questions to ask yourself are:
- Could you survive financially if you had no income, and if yes, for how long?
- How likely are you to experience such circumstances?
If you have a family and a lot of outgoing payments but few savings or parents willing to offer a loan then it may be difficult to get by if you’re out of work, sometimes even if you are receiving sick pay.
Newly qualified dentists and doctors might be interested in income protection because when they start working for the NHS they’ll have less sick pay than colleagues who have been there for years. The longer they work for the NHS, the more sick pay they’ll get.
Brexit may also cause people to consider income protection. Now that the UK has voted to leave the EU, jobs in financial services or banks could be at risk.
Income protection insurance is used by people in a huge range of professions, from local government officers to care workers and electrical engineers.
Accident, sickness & unemployment insurance and short-term income protection
Insurers use a combination of terms to describe income protection cover. Sometimes identical policies will have different names. The most common policy descriptions are 'income protection insurance', 'accident, sickness & unemployment insurance', or separate 'accident and sickness' and 'unemployment' policies.
The cover provided by these policies is relatively self-explanatory. 'Income protection insurance' can be any combination of accident, sickness or unemployment cover but it often includes all three.
The more risks you cover the more expensive your policy will be.
Short-term income protection works in the same way but the payout period will be shorter and occasionally it won't cover as many serious illnesses as income protection insurance. Different policies will allow you to choose short-term payout periods. Typical options include 6 months, 12 months or 18 months.
Activequote splits the policies you can search for into 'income protection insurance', 'redundancy insurance', 'accident and sickness insurance' and 'mortgage protection insurance'. There will be long- and short-term options within these categories.
The 8 best firms for short-term income protection policies
- Best Insurance
- British Insurance
- DMS Security
- Keystone Insure
- Real Protection Ltd
Income protection claims data
There were 14,664 income protection insurance claims in 2015, according to the Association of British Insurers. Of these claims, 13,372 (91.2%) were paid and 1,292 (8.8%) were declined. In total, £131,026,000 was paid out by insurers, making the average claim £9,799.
Individual insurers release data on claim numbers, so it may be worth checking the companies you are considering to make sure they’re in line with the national average.
Aviva says it paid out 1,361 income protection claims in 2015.
Royal London paid 94% of income protection claims last year and the average payout was £7,580.
It also says the three most common claims were musculoskeletal disorder (pain or injuries to ligaments, muscles, nerves, tendons, neck and back, e.g. carpal tunnel syndrome), cancer, and mental illness. The average age of its customers making a claim was 43.
Some insurers exclude mental illness, stress and back pain from their income protection policies or make it hard to claim for them, so if you’re concerned about these conditions, make sure you know you’re covered for them.
Compare providers’ policies on Activequote.
Mortgage protection insurance
Income protection insurance provides a payout based on a percentage of what you would earn in a month after any company or government benefits such as sick pay. It is paid into your bank account so how you spend it is up to you, which means it can cover mortgage payments or rent.
There are a number of other products that cover mortgage payments specifically. Payment protection insurance (PPI) and mortgage payment protection insurance (MPPI) pay out in similar circumstances to income protection but only cover loans and credit agreements such as your mortgage.
Many people have been mis-sold PPI in recent years. It is not needed by everyone, especially if you have sickness pay or are likely to receive a large redundancy payout if you lose your job, and it is not compulsory if you have a mortgage.
However, if you are only worried about mortgage repayments it may be worth looking into a mortgage-specific product because they can be cheaper than income protection insurance.
Mortgage payment protection insurance is designed to cover just mortgage payments rather than general living costs. Policies often cover mortgage payments for up to two years and tend to pay up to 65% of your monthly income or £2,000 - whichever is lowest.
There’s lots of advice online about mortgage protection from sites such as the government’s Money Advice Service and Money Saving Expert.
Income Protection Insurance Reviews
DMS Security Plans income protection review DMS offers ‘short-term income replacement’ for those who are employed and a separate product for those running their own business. Its income protection and replacement products have both been rated 5 Stars by an independent financial review service. Its policies have a range of options so they can be tailored to individual needs. Its short-term plan for employed individuals include a monthly payout of up to 65% of their gross income up to a maximum of £3,000, and the plans can last 6 or 12 months.
ESMI income protection review ESMI offers a short-term product called Sick Pay which is rated 1 star out of five by a leading independent review firm. The policy has three levels: up to £1,000 of monthly cover, which costs £20.85 a month; up to £1,500 of monthly cover, which costs £28.96 a month; and up to £2,000 of monthly cover, which costs £38.66 a month.
iProtect income protection review iProtect offers 4-star rated short-term income protection insurance that pays up to £1,500 a month or 65% of your gross monthly income (whichever is less), for up to 12 months.
It has an online-only application process and you can choose between accident and sickness or accident, sickness and unemployment cover.
Keystone income protection review Keystone’s short-term income protection cover is rated 5 stars by an independent financial review company. It offers a choice of accident and sickness or unemployment cover.
Its policy includes a payout of up to £3,000 per month or 90% of your income after tax, a choice of 12 or 18 months’ benefit period, three excess options, no job or industry exclusion and benefits paid directly to you.
Its policy excludes pre-existing medical conditions, mental health disorders, stress and voluntary redundancy.
Paymentshield income protection review Paymentshield offers a range of insurance products including income and mortgage protection. The company as a whole is rated 1.5 out of 5 from 51 reviews on Reviewcentre.com. Its short-term income protection scheme, IncomeShield, is rated 3 Stars by an independent financial review firm. Its income protection insurance includes: cover if you’re self-employed, payout of up to £2,000 a month, the option to defer your first 2 months' premium payments or choose to pay your premiums from the start of your policy for a cheaper monthly premium, and 12 or 24 months' benefit period with Accident and Sickness cover.
Its policy excludes pre-existing medical conditions, self-inflicted injuries, drug or alcohol abuse, back conditions, mental health issues and stress and voluntary redundancy.
Realm Protection income protection review Realm offers income protection that pays out for 12 consecutive months if you cannot work. Once you return to work for at least three months you can claim again on the policy. Its product is rated 3 Stars by an independent financial review firm. Its policy accepts self-employed workers; includes accident, sickness and unemployment; and pays out up to 65% of gross income up to £2,500 on the 60 days exclusion period option (meaning you cannot claim for unemployment for 60 days following the start date of the policy).
Synergy Financial Products Limited income protection review Synergy offers a range of income protection policies. Its short-term product is rated 3 Stars out of 5 by an independent financial review firm. Its accident, sickness and unemployment cover offers a payout of up to 60% of your normal monthly income, with the maximum level of cover set at £2,000 per month.
Uinsure income protection review Uinsure offers accident, sickness and unemployment cover under its Bill Protector policy, which costs £28.50 a month and includes £500 worth of monthly benefit.
Bill Protector is rated 2 stars out of 5 by an independent financial review firm.
The Exeter income protection review The Exeter offers two income protection products that are designed to pay a regular benefit if you cannot work because of illness or injury. It does not cover against unemployment.
Its Pure Protection Plus policy is for people who work in manual, physical occupations and skilled trades, and Income One Plus policy provides bespoke cover for those in a professional, low risk or administrative occupations.
Income One Plus has three premium options: 'level guaranteed' premiums that stay level throughout your policy; 'age-costed guaranteed' premiums that increase with age, but at a rate guaranteed in advance; and 'age-costed reviewable' premiums that increase with age and are based on rates that can change. The Exter says it may increase or decrease reviewable premiums once a policy is more than 3 years old.
The Pure Protection Plus only offers age-costed guaranteed premiums and age-costed reviewable premiums.
For both policies, the maximum benefit you can receive is 60% of the first £100,000 of your personal taxable income and then 40% above £100,000. This must be between £500 and £10,000 per month. You have to be between the ages of 18 and 59 when you apply for The Exeter income protection.
British Friendly income protection review British Friendly is a mutual society, which means it doesn't have shareholders and is managed and run for the benefit of its members. If you buy a policy you become a member and can vote at its AGM. It paid 92.4% of claims across all its policies in 2017.
It has a range of income protection-style products that can offer short-term cover for self-employed, casual or part-time workers (Breathing Space); cover for a child's education (Century Education Plan); and cover during sickness and injury (Holloway).
Its more standard income protection plan is called Protect. It's available for employed or self-employed people aged between 18 and 64.
It can pay out up to 70% of your annual taxable income if a doctor says you are unable to do the main tasks of your occupation. You can choose short-term or long-term cover that pays a weekly benefit into your bank account to help replace any loss of earnings due to sickness or injury.
Paymentcare income protection review Paymentcare specialises in income protection insurance and has four main products: homeowners' income protection, mortgage protection, loan protection and credit card protection. It says it processes the majority of policies online, which means its operating costs are lower. It also says it doesn't load premiums with high commissions.
Its homeowners' income protection can cover accidents, illness and unemployment up to £2,000 a month and must not exceed 65% of your monthly salary. It's available if you're aged 18 or over when your policy starts and not passed the state pension age before the termination date of cover. The Paymentcare website has as an instant quote feature to allow you to see your price in seconds.