What is income protection insurance?

Income Protection Insurance: Protecting Your Livelihood

In today's unpredictable world, safeguarding your finances against unexpected events has become increasingly important. Income protection insurance can provide a regular income if you're unable to work due to illness or injury, helping to ensure that you can maintain your standard of living even during challenging times. 

Do I need income protection insurance?

The necessity of income protection insurance depends on various factors, including your financial situation, job stability and existing support network. If you rely on your income to cover living expenses, mortgage payments, or other financial obligations, income protection insurance can provide valuable peace of mind. This is particularly true if you don't have sufficient savings to fall back on in case of an unexpected loss of income.

As part of your planning, you should also consider your reliance on sick pay or employer benefits. While some employers offer sick pay schemes, they may not cover your full salary or provide longer-term support. Income protection insurance can act to bridge this gap by offering ongoing financial support until you're able to return to work or the policy term ends.

When do you need income protection insurance?

The need for income protection insurance can arise at any stage of life, but certain life events may highlight its importance. For instance, if you're the primary breadwinner in your family, having income protection insurance can provide peace of mind that your loved ones are financially secure if you're unable to work due to illness or injury.

Similarly, individuals with significant financial commitments, such as mortgages or dependent family members, stand to benefit greatly from income protection insurance. It provides a safety net during periods of incapacity, allowing you to focus on recovery without worrying about financial strain.

Furthermore, those in professions with higher risks of injury or illness, such as construction workers or healthcare professionals, may find income protection insurance particularly valuable. Even if you have savings, they may not be sufficient to cover long-term loss of income due to unforeseen circumstances.

How much does income protection insurance cost?

The cost of income protection insurance varies depending on several factors, including your age, occupation, health status, desired level of coverage, and the waiting period before benefits start to be paid. Generally, policies with shorter waiting periods and higher benefit amounts tend to be more expensive.

Your occupation plays a significant role in determining the cost of income protection insurance. Jobs with higher risks of injury or illness typically attract higher premiums due to the increased likelihood of claims. Additionally, your age and health status at the time of purchasing the policy influence the premium amount, with younger, healthier individuals usually paying lower premiums.
It's essential to carefully assess your financial needs and budget when selecting an income protection insurance policy. While lower premiums may seem attractive, ensure that the policy offers adequate coverage and benefits to support you and your family in case of income loss.

Is Income insurance worth it?

Determining whether income protection insurance is worth it depends on your individual circumstances and priorities. While it's an additional expense, the financial security and peace of mind it provides can be invaluable.

Consider the potential consequences of being unable to work due to illness or injury. Without income protection insurance, you may have to rely on savings, government benefits, or support from family and friends, which may not be sufficient to maintain your lifestyle or cover essential expenses. In contrast, income protection insurance ensures a steady income stream, allowing you to meet your financial obligations without dipping into savings or relying on external assistance.

Ultimately, the decision to protect yourself with income protection insurance should align with your financial goals and risk tolerance. Assess your current financial situation, future earnings potential, and existing support systems to determine whether income protection insurance is a worthwhile option for you to consider.

Is income protection insurance tax deductible?

In most cases, income protection premiums are funded privately from income that has already been taxed. Unfortunately, in this instance there is no tax relief on the premiums. However, any payments received as a result of a claim on such a policy will be paid tax-free. 
Some employers will provide income protection as a benefit for their employees, in this case any payouts will likely be taxed as income. This is because employers can seek corporation tax relief on a premiums paid on behalf of employees – therefore any payouts received will usually be sent via the employer and will therefore be taxed via PAYE. 


Income protection insurance serves as a vital financial safety net, providing a regular income if you're unable to work due to illness or injury. While the necessity of income protection insurance varies depending on individual circumstances, it offers valuable peace of mind and financial security during challenging times. Assess your financial needs, occupation, and existing support systems to determine whether income protection insurance is a worthwhile option for you. 

If you’d like to discuss how income protection may benefit you and your family, why not get in touch and speak to one of our team for a free initial consultation

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice.