Income protection insurance pays a tax-free monthly benefit if illness or injury stops you working, designed to replace your salary so you can keep paying the mortgage, bills, loans and household costs without dipping into savings or missing payments that damage your credit file.
What Your Monthly Salary Actually Has To Cover
For a typical UK homeowner, take-home pay covers far more than the mortgage. Build a list of every monthly outgoing that becomes a problem if missed:
- Mortgage payment (often £900–£1,800)
- Council tax
- Energy bills (gas, electricity)
- Water
- Broadband, mobile contracts
- Car finance / PCP
- Personal loans, credit card minimums
- Childcare, school fees
- Food, fuel, insurance
For most households this totals £2,000–£4,000/month. Your income protection should target enough to cover at least the non-discretionary items.
Why a Single Missed Payment Hurts For 6 Years
UK credit reference agencies (Experian, Equifax, TransUnion) keep records of missed payments for 6 years. A single late mortgage payment can:
- Drop your credit score by 50–100 points
- Block remortgaging onto best high-street rates
- Force you onto a higher SVR for 5+ years
- Trigger guarantor or specialist-lender requirements on future borrowing
This often costs £5,000–£20,000 in extra interest over the life of the mortgage. Income protection that actually covers your bills stops this snowball before it starts. See our credit score guide.
How Much Cover Do You Actually Need?
Most insurers cap benefit at 50–65% of gross salary (because they don't want you better off claiming than working). Within that limit:
- Minimum sensible: mortgage + council tax + utilities
- Comfortable: + car finance, loans, mobile, broadband
- Lifestyle protection: + childcare, food, insurance, leisure
Talk to an adviser — we'll model what % of your salary you actually need rather than maximising premium for max cover.
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Choose the Right Deferred Period
The deferred period is how long you wait between stopping work and the policy paying out. Match it to your employer sick pay:
- 4 weeks — self-employed, no sick pay (most expensive)
- 8 weeks — minimal sick pay
- 13 weeks — 3 months full pay (typical mid-tier)
- 26 weeks — 6 months full pay (NHS, teachers, large corporates)
- 52 weeks — full year sick pay (NHS senior staff — see our NHS guide)
Choosing 26 weeks instead of 4 can cut premiums by 50%+ if your employer pays full sick for 6 months.
Own Occupation vs Any Occupation
This is the single most important policy detail and most people don't realise it exists:
- Own occupation — pays out if you can't do your specific job (e.g. a surgeon with hand tremor). The gold standard.
- Any suited occupation — pays only if you can't do any job your skills suit. Weaker.
- Activities of daily living (ADL) — pays only if you can't perform basic tasks like dressing, bathing. Almost worthless for working-age claimants.
Always insist on own occupation. Most quality insurers (LV=, Royal London, The Exeter, Vitality) offer it as standard.
Next Steps
- List your essential monthly outgoings
- Check your employer's full sick pay entitlement (don't guess — ask HR)
- Match deferred period to sick pay
- Insist on own occupation
- Pair with critical illness cover — IP for monthly income, CIC for the mortgage lump sum
Free protection review — we'll model exactly what you need across all major insurers.
Frequently Asked Questions
- Is income protection benefit taxable?
- No — benefits paid from a personal income protection policy are tax-free. Group policies through an employer are taxable as PAYE income.
- Will the insurer try to wriggle out of paying?
- Reputable insurers pay 90%+ of valid claims (LV= 96%, Royal London 95%, The Exeter 95%+). Disputes mostly come from non-disclosure at application — be 100% honest.
- What if my mortgage rate rises?
- Index-linked policies increase benefit each year with RPI/CPI to keep pace with rising costs. Worth ticking the box at outset.
- Can I claim more than once?
- Yes — most policies allow multiple claims through the term. After recovery and return to work, cover restarts for the next claim.
- What happens if I go back to work part-time?
- Most modern policies pay a proportionate benefit if you return part-time on reduced earnings — encouraging gradual return without losing all support.
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