Last reviewed: June 2026
TL;DR- Income protection pays a regular monthly income (not a lump sum) if the insured is unable to work due to illness or injury, continuing until they return to work or reach the policy's maximum benefit period.
- The deferred period (how long after stopping work before payments begin) is typically 1, 3, 6 or 12 months - longer deferred periods mean lower premiums.
- The monthly benefit is typically limited to 50-65% of pre-disability income, to maintain an incentive to return to work.
- Income protection is distinct from critical illness cover (lump sum on diagnosis) and MPPI (short-term payment cover including unemployment).
How Income Protection Works
Income protection (also called permanent health insurance or PHI) pays a monthly benefit if the insured becomes unable to work due to illness or injury. Unlike critical illness cover, it is not a lump sum - it is a regular income replacement that continues for as long as the insured remains unable to work, up to the policy's maximum benefit period. It provides the financial stability to maintain mortgage payments and other essential costs during a prolonged period of incapacity.
The policy definition of incapacity matters significantly: "own occupation" definition (unable to perform the specific job the insured does) is the most generous and most expensive; "any occupation" (unable to perform any work at all) is the most restrictive and cheapest. A desk-based professional should seek own occupation cover - being unable to perform their specific role is sufficient to claim, even if they could theoretically do a different type of work.
The Deferred Period
The deferred period is the waiting time between the insured stopping work and the first benefit payment being made. Common deferred periods are 1, 3, 6 and 12 months. A longer deferred period means a lower premium, because the insurer has less exposure. The appropriate deferred period should be matched to the insured's employer sick pay provisions and personal savings. If an employer pays full salary for 3 months and then half salary for 3 months, a 6-month deferred period may be appropriate. If there is minimal sick pay and savings, a shorter deferred period is important.
Benefit Level and Tax Treatment
The monthly benefit on income protection is typically capped at 50-65% of the insured's pre-disability gross income (with state incapacity benefits also taken into account). This level is set to maintain a financial incentive to return to work. The benefit is paid tax-free where premiums are paid from net (post-tax) income - which is the case for most individual policies. Policies taken through an employer, where the employer pays the premium, may result in the benefit being taxable.
Maximum Benefit Period
The maximum benefit period determines how long the income protection benefit can be paid continuously for a single claim. Options include: 1 or 2 years (short-term), which is cheaper but limits protection for long-term conditions; 5 years; or until a specified age (typically 60 or 65 - the insured's expected retirement age). A policy running to retirement age provides comprehensive protection for the full mortgage term and is the preferred option for most borrowers, though it carries a higher premium.
Frequently Asked Questions
What is the difference between income protection and MPPI?
Mortgage Payment Protection Insurance (MPPI) is a short-term product that covers mortgage payments for a maximum of 12-24 months in the event of accident, sickness or unemployment. Income protection is a long-term product covering illness and injury only (not unemployment) but potentially paying until retirement age. MPPI is cheaper and simpler; income protection is more comprehensive for long-term disability risk. For a borrower who experiences a serious long-term illness, MPPI runs out and leaves them without income protection - whereas a long-term income protection policy continues.
Does income protection cover self-employed people?
Yes. Income protection is particularly important for self-employed people who typically have no employer sick pay to fall back on. The definition of incapacity and the income calculation is slightly different for self-employed applicants - based on the insured's actual business profit rather than a salary. Some insurers assess self-employed income more conservatively, using an average of recent years' profits. A specialist protection adviser with self-employed client experience is important for accurate income protection for self-employed borrowers.
Can I claim income protection if I have been off work due to a pre-existing condition?
Pre-existing conditions are typically excluded from income protection policies at outset. A claim related to a condition that existed before the policy started will be declined if that condition is specifically excluded. If the incapacity is from an entirely different condition not related to any exclusion, the claim will normally be considered. The insurer will investigate any claim to determine whether there is any connection to excluded pre-existing conditions.
How does statutory sick pay (SSP) interact with income protection?
Statutory Sick Pay is paid by the employer for up to 28 weeks at a flat rate (£116.75 per week in 2026-27 - check GOV.UK for current rate). SSP is significantly lower than most employed borrowers' salaries and is far below the mortgage payment for most loans. An income protection deferred period shorter than 28 weeks would see the benefit commence while SSP is still being paid - the policy and insurer will account for SSP payments in the benefit calculation. Once SSP ends, the income protection benefit becomes the primary income replacement.
