Income Protection Insurance UK: What It Is and Why You Probably Need It

Last week I wrote about underwriting - what actually happens when you apply for insurance and why the process can feel so daunting. This week I want to talk about a product that I think is one of the most important and most overlooked in personal finance, and one that most people have either never heard of or have confused with something else entirely.

Income protection insurance, often referred to as IPI. 

Before we get there, I just want to go through three products which sometimes get muddled together, because I think the confusion itself might be why so many people end up with none of them.

Life Insurance, Critical Illness Cover and Income Protection: What's Actually Different

Life insurance pays out a lump sum when you die. That's it. It's designed to protect the people who depend on you financially - to pay off the mortgage, replace your income for a period, cover childcare costs or whatever your family would need. It does not pay out if you become seriously ill, lose your job or can't work. Just death (or terminal illness in most policies). The key point is -  life insurance protects other people from the financial consequences of losing you.

Critical illness cover pays out a lump sum if you are diagnosed with a specific serious illness listed in your policy - typically things like cancer, heart attack, stroke and multiple sclerosis. The list varies by insurer and the detail matters enormously (although there are some agreed industry standards), so a broker is useful here. It pays out on diagnosis, not on death. So if you're diagnosed with breast cancer, for example, you would receive a lump sum to do with as you need. That could be to pay down debt, cover treatment costs, take time off work or adapt your home. This is a one-off payment, not an ongoing income.

Income protection replaces a portion of your income - typically around 50 to 70% - if you are unable to work due to illness or injury, for as long as you need it, up to the end of the policy term (which could be to retirement age). It pays out monthly, like a salary and it’s tax-free because you've paid for the policy from your taxed income. It is not a lump sum or a one-off. It’s a regular, reliable income that keeps coming in while you can't work.

The Statistic That Should Make Everyone Have a Think

According to the Financial Conduct Authority's Financial Lives Survey 2024, only 6% of people in the UK have an income protection policy.

Six percent.

A separate survey found that only 14% of British adults - fewer than one in six - have income protection. The figures do vary depending on the source but the picture is pretty consistent - the vast majority of people in this country are working without any protection for their income if they become unable to work.

And yet the risk of needing it is far higher than most people imagine. We tend to think of serious illness as something that happens to other people, or to older people. Around 2.8 million people in the UK are currently economically inactive due to long-term sickness or injury. A recent study found that people in their early 20s are more likely to be economically inactive due to ill health than people in their early 40s.

This is not actually a niche risk is it? It’s real life!

What Actually Happens If You Can't Work?

We need to be specific about this because I think vagueness is part of what lets us avoid the question.

If you are employed and you become too ill to work, your employer is legally required to pay you Statutory Sick Pay. As of 2025, SSP is £118.75 per week and payable for up to 28 weeks. That is roughly £515 a month. If your rent or mortgage is more than that - and for most people it is - you are already in trouble within the first month, before you've paid for food, utilities, transport or anything else.

After 28 weeks, SSP ends entirely. What then? You may be able to claim Universal Credit or Employment and Support Allowance, both of which come with their own eligibility criteria, possible delays and complications, and neither of which is designed to replace a working income.

If you are self-employed, it is more stark still. You won't receive Statutory Sick Pay because you don't have an employer. You may be able to claim New Style Employment and Support Allowance or you may be eligible for Universal Credit though, but again, they’re not designed to replace a working income. 

This would also be the space where your emergency fund kicks in and also getting support from your network like we spoke about during Mental Health Awareness Week. 

Speaking of which, the piece on depression touched on the compounding effects of not being able to act - bills mounting, decisions unmade and the financial grooves that form when you're just surviving. Income protection is the thing that could interrupt that spiral before it starts. It gives you breathing space to recover without the additional catastrophe of losing your home or going into serious debt on top of everything else.

So Why Don't More People Have It? 

The same reasons we avoid all insurance really, plus a few specific to this product.

Most people have simply never been told it exists. Life insurance gets talked about because it's attached to mortgages - lenders often require it. Critical illness often gets mentioned alongside that. Income protection rarely comes up unless you specifically go looking for it or work with a broker who brings it to the table. 

There's also a belief - not entirely wrong, but often overstated - that it's expensive. Younger people can often access premiums of around £5 a month for low-risk jobs, and overall the cost can be as little as £10 a month, though this depends on age, health, occupation, and lifestyle. For most people under 40 in a desk-based job with no significant health history, it is considerably more affordable than assumed.

And then there's the psychological piece. Income protection asks you to imagine being too ill to work for months or years. That's uncomfortable to think about - it touches on vulnerability, mortality, the possibility of your body failing you. For those of us who've experienced mental ill health, it may also trigger the avoidance spiral we talked about with shame. It feels complicated and a bit boring, so it gets pushed aside, so it becomes a bigger deal, so it never gets done.

The Gender and Class Dimensions

Women are, again, disproportionately affected by the protection gap here.

The gender pay gap means women are working from a lower income base, which can make premiums feel less justified - but it also means there's less financial cushion if something goes wrong. Women are more likely to work part-time, in insecure employment or to have career gaps due to caring responsibilities - all of which affect both eligibility and the amount that can be protected. For non-binary people who may be more affected by income instability, the same issues apply. 

For self-employed women (and self-employment is rising among women in the UK) there is no SSP safety net at all. Income protection is not a nice-to-have in this situation, it’s an important safety net. 

The class dimensions are real too. Mental health conditions are the second most claimed-for health issue by income protection policyholders, and 34% of people aged 18-24 have taken time off work in the past year due to poor mental health - a group who are also among the least likely to have any protection in place. The people most likely to need it are least likely to have it.

What To Look For If You're Considering It

A few things worth understanding before you go looking:

Deferred period - this is how long you wait before the policy pays out after you stop working. Common options are four weeks, eight weeks, 13 weeks, 26 weeks or 52 weeks. The longer the deferred period, the cheaper the premium. If you have savings or sick pay that would cover you for three months, a 13-week deferred period makes sense. If you have nothing to fall back on, a shorter deferred period is worth paying for.

Own occupation vs any occupation - this matters enormously. ‘Own occupation’ means the policy pays out if you can't do your specific job. ‘Any occupation’ means it only pays out if you can't do any work at all. Own occupation is generally a better protection and is probably worth paying for if you can.

Guaranteed vs reviewable premiums - guaranteed premiums stay the same for the life of the policy, reviewable ones can go up over time. Usually reviews take place at set points where the company will do some underwriting and make a decision. Guaranteed is generally preferable for long-term planning but it’s worth noting that premiums can come down at renewal - for example if you take a job where you drive less. 

Benefit amount - policies typically cover 50-70% of your gross income. This is by design, it's meant to help you recover, not to make being off work more financially attractive than working.

Mental health cover - given everything we've talked about, this is worth checking explicitly. Most standard income protection policies do cover mental health conditions but it's worth confirming, particularly if you have a history that might result in an exclusion.

A Practical Starting Point

If you don't have income protection and you're wondering where to start: a specialist broker is generally the best route. They can look across the market, understand your specific situation - including your health history - and find the most appropriate policy. It costs you nothing to get a quote and the conversation itself is usually clarifying.

If cost is a genuine barrier, start with the deferred period. Lengthening it from four weeks to 13 weeks can reduce your premium significantly. Pair it with an emergency fund to cover that gap and you have a much more complete picture.

And if it applies to you, income protection for the self-employed is the one. There is no statutory safety net for you, so create your own.

Bringing It Together

Life insurance protects your people after you're gone. Income protection protects you - and them - while you're still here. The two are not interchangeable, and having one doesn't mean you have the other.

In 2024, according to the Association of British Insurers, UK insurers paid out a record £8 billion in protection claims - the equivalent of £21.9 million every single day, going to people experiencing bereavement, illness and injury. That money reached people who had planned ahead, however imperfectly, however reluctantly.

You are worth that planning. Your income is worth protecting. And the process of protecting it, though it asks you to sit with some uncomfortable thoughts, is one of the most genuinely loving things you can do for yourself and the people who depend on you.

If you'd like to talk through what this might look like for your specific situation, that's exactly the kind of conversation I love to have. A free call is always the place to start.

Book yours here.

Love Eleanor. Xxx

FAQ - Income Protection Insurance

Is income protection insurance worth it?

For most working people, especially the self-employed, yes. It replaces up to 70% of your income if illness or injury stops you working and premiums can be as low as £10/month.

What's the difference between income protection and critical illness cover?

Critical illness pays a one-off lump sum on diagnosis of specific conditions. Income protection pays a monthly income for as long as you can't work, up to retirement.

Does income protection cover mental health?

Most standard policies do, though it's worth confirming, especially if you have a prior diagnosis that could result in an exclusion.

How long does income protection pay out?

Until you return to work, or until the end of the policy term - which can be retirement age - whichever comes first.

Can self-employed people get income protection?

Yes, and it's arguably more important for the self-employed since there's no statutory sick pay safety net.