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28 May 2024
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Income Protection Insurance Explained

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Income Protection

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Income Protection Basics

Income protection insurance or permanent health insurance aims to give you an income if you can't work in the event of sickness or illness.

The amount of cover can be anything up to three-quarters of your normal wage, less any state benefits you receive.

For the self-employed, insurers usually base the level of cover on your taxable income at the point of a claim.

All pay-outs for policy are tax free and usually continue until you return to work or you reach your selected pension age/term of the policy.

Income protection cover will not pay out for redundancy, for details on redundancy insurance please read our accident sickness and unemployment cover section.

What are the Pros and Cons of an Income Protection Insurance?


  • It will provide a tax free monthly income if you cannot work due to accident or sickness
  • Will be beneficial if you or your family relies on your wage to pay most of the bills and if you want the security of continuing pay outs
  • May be useful if you are self-employed or don’t have a job with sick pay
  • It's up to you how you spend the money each month


  • This is one of the more expensive forms of this type of insurance if you have a short deferment period
  • This cover does not typically include redundancy cover, and a separate policy would be required for this cover

What is Income Protection Insurance For?

Income protection, is also known as permanent health insurance or wage replacement. It aims to provides a tax free income if the policy holder becomes unable to work through illness. The income is typically paid until retirement age, the end of the policy term or until the policy holder is able to return to work. Permanent health insurance does not normally cover unemployment or redundancy.

How do You Know How Much Cover to Have?

Most income protection policies will pay a monthly tax-free payment equivalent to between 50% and 65% of gross salary, although some companies will offer up to 75%.

Many company pension schemes include some form of permanent health insurance as part of their benefits package. You should check you benefits package before applying for an income protection plan as these can affect your maximum benefits allowed. If you are unsure please speak to one of our advisors.

What are the Different Deferment Periods?

There is a period following the accident or illness which must elapse before the policy begins to pay. This is known as the deferment period before your can receive your benefit.

This period can range from a month up to two years with the deferment periods offered varying between providers, Currently the options are 4 weeks, 8 weeks, 13 weeks 26 weeks, 52 weeks and 104 weeks. Our advisors will also have access to plans with no deferment period known as back to day one income protection insurance.

How are the Premiums Calculated for an Income Protection?

Premiums are dependent on the monthly benefit required, age, current state of health smoker status and occupation. The deferment period also affects the premium, with a shorter period resulting in higher premiums being paid.

If you are looking for life insurance its worth noting that income protection insurance can be taken with some providers as part of a life insurance multi benefit plan. The benefit of this is the potential to save on policy fees as some companies will offer a multi plan discount.

Is there Tax on Income Protection Benefits?

Al thought Income from a plans is not typical taxed as earned income taxation levels and basis of relief's are dependent on current legislation. It is important to remember that it is down to individual circumstances is not guaranteed and may be subject to change.

What are the Different types of Income Protection Insurance?:

Long Term Cover

  • pays a tax free monthly income on the event of you not being able to work due to accident or sickness. The monthly benefit is payable until you return to work or until the end of the policy term..

Short Budget Income Protection

  • pays a tax free monthly income on the event of you not being able to work due to accident or sickness. This type of cover pays for a maximum 2 years claim period for further details please read our section on low cost income protection for further details

Mortgage Payment Protection

  • pays an amount of monthly cover based on your mortgage payment if you lose your job or can't work, you get that amount of money each month. Policies usually pay out for up to a year or until you return to work. please read our section on mortgage protection.

Accident Sickness or Redundancy

  • pays an amount of monthly cover bused on your income if you lose your job or can't work, you get that amount of money each month to spend how you like. Policies usually pay out for up to a year or until you return to work. please read our section on accident sickness and redundancy

Additional options and areas for consideration include:

Some providers of income protection cover offer benefits such as

  • Increasing benefit
  • Parent and child cover
  • Rehab support services, Fracture cover
  • Life Insurance Death benefit
  • Unemployment payment holiday
  • Benefit guarantee of £1500 pm
  • Guaranteed Increase Options – Including one for those clients that rent

You can Buy Income Protection Insurance Plans on a

Single Life

  • Pays an Income to one person on a claim

Joint life

  • Plan can only be taken out as an single life plan as the policy is underwritten on your personal heath and occupation

Why Compare Income Protection with Go Direct?

Our income protection insurance quote tool allows you to compare the leading insurance companies income protection premiums. What's more Go Direct guarantee that at the time of application you will not get cheaper like for like cover as we rebate 50% of the initial commission the provider pays us back into your income protection insurance policy.

Instant Quote

Do you Need Advice on your Income Protection Options?

After looking through the income protection information quotes, if you would like protection advice, complete our inquiry form and we will contact you to discuses your income protection or accident and sickness needs.

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