Income Protection Insurance | What You Need To Know | Help

Introduction

Gemma:
Welcome back to Let’s Talk Money and Mortgages. Today, we’re discussing income protection insurance: what it covers, when it pays out, and whether it’s the same as permanent health insurance. Abdul, our insurance manager at WIS, is here with us.

What is income protection?

Abdul:
Income protection is a policy designed to protect against incapacity caused by illness or injury.

What does income protection cover?

Abdul:
It pays a regular monthly benefit if you’re unable to work due to illness or injury.
It usually covers up to 60% of your annual income (for personal policies).
Covers a wide range of issues:
Serious illnesses
Surgeries
Broken bones
Mental health issues (one of the top reasons for claims)
Musculoskeletal problems (back pain, neck issues, etc.)

What is not covered?

Abdul:
Illnesses caused by alcohol or drug abuse
Redundancy or job loss (it only covers medical incapacity)

Is income protection worth having?

Abdul:
Yes. If you lose your income due to illness or injury, you may struggle to pay for:
Mortgage/rent
Utilities
Food
Insurance plans
Income protection ensures you can still meet these essential costs.

How long does income protection last?

Abdul:
Policies must end before your 70th birthday or planned retirement date (whichever is earlier).
Options include:
Short-term policies (cheaper, but limited cover)
Comprehensive long-term policies (can pay out until retirement if needed)
Example: A client who had a stroke received payments for 33 years because of his long-term policy.

Is income protection the same as permanent health insurance (PHI)?

Abdul:
Yes, they are the same product. PHI is the old name for income protection. The term was changed to avoid confusion with medical bills.

Are the payouts tax-free?

Abdul:
Yes. Any benefits received from an income protection claim are not taxable.

What happens if I miss premium payments?

Abdul:
Insurers give a 30-day grace period after a missed premium.
If unpaid, the policy ends.
While you’re on claim and receiving benefits, you don’t need to pay premiums.

Can I claim more than once?

Abdul:
Yes. You can claim multiple times throughout the policy. Premiums stay the same after a claim.

How do I make a claim?

Abdul:
A doctor’s note (GP note) confirming you cannot work is required.
The insurer will then assess your income and begin payments.

Will it cover redundancy if I get sick afterward?

Abdul:
No. If you’ve already been made redundant, you can’t claim on income protection.

Can I pay for income protection through my business?

Abdul:
Yes, through Executive Income Protection:
It’s paid as a business expense.
The insurer pays the business, which then pays the employee.
Tax treatment: the benefit is a trading receipt for the business and a trading expense when paying the employee. The employee receives normal income and pays normal tax.

How common are claims?

Abdul:
Very common. Major reasons include:
Mental health
Musculoskeletal issues (back/neck pain, especially for office workers)
Statutory Sick Pay (SSP) is only £94 per week, which is usually not enough to cover essentials.

Does it cost more as you get older?

Abdul:
Yes. The older you are, the more expensive it gets because the risk of illness increases.
Policies must start before your 50th birthday.
Options for people over 50 are very limited.

Is there a policy that covers redundancy?

Abdul:
Yes – Accident, Sickness & Unemployment Insurance (ASU):
Covers accident, sickness, and redundancy.
Usually pays out for 12 months (sometimes up to 2 years).
Can be used alongside income protection, but payouts may be reduced if both policies overlap.

Final thoughts

Abdul:
Many people underestimate the importance of income protection.
It provides cover not just for serious illnesses, but also for everyday issues like stress, anxiety, or back problems.
Having this policy ensures your vital expenses are covered if you can’t work.

Gemma:
Great advice as always. Please remember: policies differ by insurer, so always speak to an advisor. If you don’t have one, our WIS team is happy to help.

A mortgage is secured against your home or property and may be repossessed if you do not keep up repayments.