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4 Jul 2022

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Income Protection Insurance Explained

Income Protection

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 income protection insurance are tax free and usually continue until you recover or you reach your selected pension age/term of the policy.

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

Income Protection Insurance Pros and Cons


  • 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.

Income Protection Insurance Explained

Income protection insurance, also known as permanent health insurance or income replacement, provides a tax free income if the policy holder becomes unable to work through illness. An income is 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.

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%.

There is a period following the accident or illness which must elapse before the policy begins to pay. This can range from a month up to two years and is known as the deferment period. Deferment periods offered vary between providers, currently the options are 4 weeks, 8 weeks, 13 weeks 26 weeks, 52 weeks and 104 weeks.

Premiums are dependent on the monthly income 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 required.

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 an independent financial advisor.

Budget Income Protection

Some companies now offer budget income protection which can offer a more affordable monthly premium of up to 64% cheaper than a standard premium please read our section on low cost income protection for further details.

Income Protection Insurance Quote

Our income protection insurance quotation 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.

Information regards taxation levels and basis of reliefs are dependent on current legislation, individual circumstances are not guaranteed and may be subject to change.

Do you want advice on income protection insurance ?

After looking through the income protection insurance information if you would like income protection insurance advice, complete our life insurance enquiry form and we will contact you to discuses your income protection insurance needs.

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Go Financial Services is a trading style of Go Direct UK Ltd which is an appointed representative of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales Company 5703224. FCA Number 456600