How Much Income Protection Insurance Do I Need?

Short answer:

Most people should start by insuring 50%–70% of their gross (pre‑tax) earnings, because this is the maximum insurers will allow.  From there, you tailor the benefit to your actual monthly spending and any sick‑pay you receive from your employer.

1.  What Income Protection Covers

Income Protection (also called Permanent Health Insurance) pays you a monthly, tax‑free benefit if you cannot work due to illness or injury.  It is designed to replace part of your income until you recover, retire, or reach the end of the policy term.

2.  Why You Can’t Insure 100% of Your Salary

Insurers cap the benefit at 50%–70% of gross earnings.
Two reasons:

• To avoid over‑insurance (i.e., earning more by being off sick than working).
• Because benefits are usually tax‑free, so 60%–70% of gross income often approximates your normal take‑home pay.

3.  Typical Maximum Benefit Levels

Different insurers apply different caps:

• 50%–70% of gross annual salary is standard.
• Many use tiered limits, e.g.:
  • 60%–70% on the first £60,000–£70,000 of earnings
  • 45%–50% on income above that
• Absolute monthly caps often apply:
  • Standard policies: £6,000 per month
  • High‑tier policies: £15,000–£20,833 per month

If you’re not working (houseperson / low hours)

Maximum benefits are much lower — often £1,500–£1,666 per month.

4.  How to Calculate the Cover You Need

Step 1 — Start with the maximum you’re allowed

Example:

• Salary: £36,000 per year
• Gross monthly income: £3,000
• 70% cap: £2,100 per month

This is your maximum insurable benefit.

Step 2 — Check your employer’s sick‑pay

Ask your employer:

• Do you have company sick pay?
• Do they offer Group Income Protection?
• How long does full pay last?
• How long does half pay last?

Example employer scheme:

• 6 months full pay
• 6 months half pay
• Nothing after 12 months

If you have this, you might choose a deferred period of 6 or 12 months so your policy only starts paying when your employer stops.

This can significantly reduce premiums.

5.  Match the benefit to your real‑world spending

Look at:

• Mortgage or rent
• Utilities and household bills
• Food and essentials
• Debt repayments
• Childcare
• Insurance premiums
• Savings goals

Most people find that 60%–70% of gross income roughly matches their take‑home pay, so it usually covers essential spending.

6.  Why Income Protection Is Often Undervalued

People routinely spend:

• £30–£50 per month on car insurance
• £20–£40 on phone contracts
• £50–£100 on entertainment subscriptions

Yet many have no protection for their income — the thing that pays for everything else.

Income Protection is usually cheaper than people expect, especially with longer deferred periods (e.g., 6 or 12 months).

7.  Practical Recommendation

A sensible starting point is:

Insure the maximum you’re allowed (usually 60%–70% of gross salary), then adjust based on employer sick‑pay and affordability.

This ensures:

• Your essential bills are covered
• You avoid under‑insurance
• You don’t pay for unnecessary cover
• You maintain financial stability during long‑term illness

8.  Summary

• Maximum cover: 50%–70% of gross income
• Benefits are tax‑free, so this often matches take‑home pay
• Check employer sick‑pay before choosing your deferred period
• Policies with 6–12 month deferred periods are much cheaper
• High earners face tiered caps and monthly maximums
• Non‑earners have low fixed benefit limits
• Start with the maximum allowed, then tailor to your budget and needs

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