Income Protection Explained
Published / Last Updated on 11/03/2026
Income Protection (Permanent Health Insurance) — Quick Overview
Income Protection (also called Accident & Sickness Insurance or Permanent Health Insurance – PHI) pays you a regular income if you cannot work due to illness or injury. Payments begin after a chosen waiting period and can continue until you return to work or reach your selected retirement age.
What Income Protection Covers
- Illness or injury that prevents you from working.
- Regular monthly income (typically 50–60% of gross salary after deductions for state benefits).
- Long‑term protection, often to age 55, 60 or 65.
- Return‑to‑work support, including reduced benefits if you return part‑time.
How the Deferred (Waiting) Period Works
You choose how long you must be off work before payments start:
- 4 weeks — highest cost, fastest payout.
- 26 weeks — mid‑range.
- 52 weeks — lowest cost, designed to align with employer sick pay or personal savings.
Longer waiting periods reduce premiums because fewer claims start immediately.
Key Features
- Guaranteed or reviewable premiums available.
- Cannot be cancelled by the insurer (only by you).
- Cover based on occupation — lower risk jobs pay lower premiums.
- Level or increasing benefit options.
- No life cover or critical illness cover included.
- No lump sum payout — income only.
- Benefits from private policies are tax‑free.
Types of Income Protection
1. Pure Protection (Non‑Investment)
- Premiums pay only for insurance cover.
- No cash‑in value if cancelled.
- Designed solely for protection.
2. Unit‑Linked (Investment‑Linked)
- Part of each premium buys investment units.
- Units are sold monthly to pay for the insurance cost.
- Small surrender value may be available.
- Still primarily a protection product, not an investment.
Who Income Protection Suits
- Working adults (employed or self‑employed).
- Families relying on one or two incomes.
- Homeowners needing mortgage payment protection.
- Business owners needing key person or director income cover.
Tax Treatment
- Private policies: benefits are tax‑free.
- Business policies: premiums or benefits may receive tax treatment, but usually not both.
Insolvency Protection
- Covered by the Financial Services Compensation Scheme (FSCS).
- 90% of the policy value, with no upper limit.
Summary Table
| Feature | Details |
| Benefit type | Monthly income (50–60% of salary) |
| Waiting periods | 4, 26, 52 weeks |
| Term | To selected retirement age |
| Premium types | Guaranteed or reviewable |
| Investment value | Only on unit‑linked plans |
| Tax | Private benefits tax‑free |
| Cancellation | Only by policyholder |
| Suitable for | Employed, self‑employed, families, businesses |
FAQs
What is the maximum income I can insure?
Most insurers allow up to 75% of gross salary, but after deducting assumed state benefits, the practical maximum is usually 50–60%.
How long does the policy pay out?
Until you return to work, reach your policy end age, or meet the insurer’s definition of recovery.
Are premiums fixed?
You can choose guaranteed premiums (stay the same) or reviewable premiums (can change over time).
Does income protection include critical illness cover?
No. It only pays for loss of income, not a lump sum for a diagnosis.
Can I put the policy in trust?
No — income protection benefits are paid directly to you.
What happens if I return to work part‑time?
Most policies reduce the benefit rather than stop it, helping you transition back to work.
Is there a cash‑in value?
- Pure protection: no value.
- Unit‑linked: small value possible, but not designed for investment.