Income protection, explained

What income protection is

Income protection is an insurance policy that pays you a regular, usually monthly, amount if you cannot work because of illness or injury. Unlike a one-off payout, it keeps paying (up to a set limit or until you recover, retire, or the policy ends) so your essential bills carry on being met. You choose a deferred period, the wait before payments start, which is often lined up with however long your employer sick pay or savings would last. The longer that wait, the lower the premium.

Cover is typically capped at roughly half to two-thirds of your gross income, and the benefit is normally paid tax-free on a personal policy. It is designed to replace a meaningful chunk of your earnings, not all of them, which keeps an incentive to return to work once you are able.

The gap between sick pay and a real take-home

Many people assume their employer or the state will tide them over. For employees, the legal floor is Statutory Sick Pay. From 6 April 2026 two reforms widen who gets it and how soon: it is paid from the first day off (the old three waiting days are gone), and the lower earnings limit has been removed, so every employee qualifies regardless of how little they earn. It is worth £123.25 a week for up to 28 weeks. That is the ceiling of the statutory safety net; many real budgets sit far above it.

Figures are illustrative. Your own sick pay may be more generous if your employer runs an occupational scheme, and your take-home will differ. The point is the shape of the gap, not the exact numbers.

Who needs it most

Income protection earns its keep wherever a lost income would hit hardest and there is little to fall back on.

• Sole earners. If a single wage carries the household, there is no second income to lean on while you recover, so the cover does the work a partner otherwise might.
• The self-employed. No employer, no Statutory Sick Pay. If you stop, the income stops with you, which often makes the case strongest of all.
• Anyone with dependents. Children, a non-working partner, or anyone who relies on your pay raises the cost of a long absence and the value of a steady replacement income.
• People with thin savings. The smaller your emergency fund, the sooner a period off work turns into missed payments, and the more a policy is worth.

How it differs from critical illness and life cover

These three are often bundled together and just as often muddled. They solve different problems.

• Income protection pays a regular income while you cannot work, for any illness or injury that keeps you off, and keeps paying until you recover or the term ends. It is about replacing earnings month to month.
• Critical illness cover pays a single lump sum if you are diagnosed with one of a defined list of serious conditions, such as certain cancers, a heart attack, or a stroke. It pays out on diagnosis whether or not you can still work, but only for the conditions listed.
• Life cover pays a lump sum to your family when you die. It protects the people who depend on you, rather than your own income while you are alive.

Put simply: income protection covers being unable to work, critical illness covers a serious diagnosis, and life cover covers death. Many households end up with a mix, prioritising whichever gap would hurt the most.