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What is Income Protection Insurance?

Mention Income Protection insurance and chances are a number of employers and employees will give you a blank look. This guide gives you the low down on exactly what Income Protection is - and just as importantly - what it isn’t.

What is Income Protection insurance?

Income Protection insurance can provide a regular replacement income if someone is unable to work because of illness or injury. Typically, a policy pays out after they’ve been off work for 6 months (often called a deferred or waiting period) and can pay a percentage of their salary until either they return to work, reach State Pension Age, or if they die while claiming. 

However, the employer (for Group Income Protection policies), or individual (for Individual Income Protection policies) can choose how long sickness absence lasts before payments start and the length of time they should be paid for. And if an employee is able to return to work, but on a reduced basis which means they earn less, it may continue to pay out a reduced amount that takes the drop in salary into account.

No less an authority than Which? Magazine said the one protection policy every working adult in the UK should consider is Income Protection.1 Yet people are as twice as likely to insure their pets and phone rather than the very thing that pays for it all - their income.2

You may hear Income Protection sometimes called permanent health insurance or PHI, but it’s exactly the same product. Going further back, it was also called Long-Term Disability Insurance or LTD.

What's the difference between Group and Individual Income Protection?

Group and Individual Income Protection policies do exactly the same thing - protect a person’s income, but they are bought in different ways:

  • Group Income Protection (GIP) is cover that employees can only get through their employer - usually as part of an employee benefits package.
  • Individual Income Protection can be bought personally through an insurance broker or independent financial adviser (IFA), or in some cases, direct from a provider.

There are differences between the product features, so when considering Group Income Protection or taking out an Income Protection policy as an individual, make sure you are looking at the right one.

Group Income Protection - an overview:

  • Cover available through a person’s employer
  • Depending on the policy the employer chooses, it could be fully-funded by the company, fully-funded by the employee or part-funded by both
  • Pre-existing conditions are usually covered (illnesses or injuries the person may have had before or currently has) up to a certain salary band called the non-medical limit or free cover level
  • Employer-funded benefits are treated as salary by the employer

Individual Income Protection - an overview

  • Cover available for individuals and bought outside the workplace
  • Bought through a broker, IFA or sometimes direct from the insurer
  • May not cover any pre-existing conditions
  • Tends to cover a lower maximum percentage of salary than GIP, but is tax-free

What Income Protection isn't

Isn’t it what all that mis-selling was about some years back?

No it’s not. That was Payment Protection Insurance, better known as PPI. Even now, Income Protection is sometimes incorrectly linked to PPI. As mentioned above, Income Protection is sometimes called PHI, which, let’s face it, is a pretty close acronym. There are also other similarities, which led to Income Protection raising suspicions among some businesses and individuals.

Basically, PPI covered the cost of loan payments or minimum credit card payments if someone was too ill to work, typically for a year or two at most.

Income Protection can provide a regular replacement income if someone is unable to work due to illness or injury, until they either return to work, reach the end of the policy’s agreed timescale for paying benefit, retire, or die - depending on the policy chosen.

Does it cover redundancy?

No, but it’s a popular misconception.

Both Group and Individual Income Protection only pay out when a person’s illness or injury prevents them from working.

With GIP, there are some policies where an employer can choose to ensure their employee continues to receive payments from an ongoing long-term claim, even if they have to terminate their employment contract and replace them. This may be called Pay Direct or something similar, and allows both parties to move on.

An Individual Income Protection policy may also continue to pay out if someone lost their job while ill or injured, and they were receiving benefits from an ongoing claim (though this may depend on the policy they’ve selected or may be looked at on a case-by-case basis).

However, a person cannot make an Income Protection claim because they are made redundant.

Additional services and how to get Income Protection

While the financial benefits are usually the main reason why people choose to protect their income, GIP and Income Protection for individuals frequently come with a wide range of added value support. And it’s not just for employees. Employers too can also get access to expert advice and support tools. Even better, this type of support - for both employer and employee - usually comes as part and parcel of the policy and doesn’t cost a penny extra.

So what are some of the typical built-in benefits?

Employee and Employer Assistance Programme

Commonly called an EAP, with GIP policies it offers expert advice, information and practical support on a range of work and life issues. These may include health and wellbeing, money matters, bereavement, relationships, family and basic legal advice for domestic problems. It may also offer face-to-face or telephone counselling and even cognitive behavioural therapy to help people combat stress.

The employer can often access services such as advice for managers and more in-depth legal advice, especially around employment law, taxes and disability legislation.

While not universally available, some Individual Income Protection policies will provide access to an EAP similar to the programme GIP employees have. It may not necessarily be as comprehensive, but will usually offer at least an entry level of support tools and advice.

Vocational Rehabilitation

Vocational rehabilitation complements GIP perfectly. While the benefit ensures the ill or injured employee has financial security and peace of mind, expert Vocational Rehabilitation Consultants (VRC) can help the employee make a safe, and importantly, sustainable return to work when ready.

Companies that provide GIP may have their own in-house medical and vocational expertise, or might partner with an external company. Typically, VRCs have qualifications across a wide range of specialities, such as Occupational Therapy, Occupational Psychology, Physiotherapy and Nursing.

Some of the things a VRC may do are:

  • Suggesting practical ideas to aid recovery
  • Acting as an independent intermediary between the employee and employer
  • Highlighting potential barriers that may prevent the employee returning
  • Suggesting possible adjustments to the employee’s workstation or workplace
  • Creating a graduated return to work plan

Some GIP policies also allow early intervention, allowing employers to flag up situations where they believe an employee who is still at work may be struggling with a health problem.

Calling on expert VRC support early can help to prevent workplace absence by tackling short-term issues before they become long-term health problems, affecting performance and productivity.

Some personal Income Protection policies may also offer an incapacitated employee help to return to work where they believe the individual’s circumstances suggest it would be beneficial.

Sickness absence monitoring

Failing to monitor sickness absence can leave employers in the dark about causes of absence, possible trends, and the true cost of illness and injury to the business.

Meanwhile, according to the Chartered Institute of Personnel and Development’s (CIPD) health and wellbeing report 2020, ‘presenteeism’ (where people come in to work while ill) is an issue for British businesses. ‘Leaveism’, where people take allocated time off, like holiday when they’re actually ill is another problem.3

The expertise that typically comes with Group Income Protection allows companies to keep a check on the causes of absence, flagging any trends so they can be nipped in the bud. Businesses also no longer have to rely on, or try to interpret, a GP’s fit note. Instead, absence is assessed, monitored and tracked independently, providing a realistic account of how long absence may be expected to last, while identifying people persistently having time off.


Both Group Income Protection and Individual Income Protection policies may offer a number of additional benefits, either included in the policy or as an add-on that costs extra.

Some examples may include:

  • Payments for a hospital stay
  • An option to increase the benefit in line with inflation during a claim
  • Percentage increase in benefit after an agreed length of sickness absence

How do you get Income Protection insurance?

Group Income Protection

Group Income Protection is bought by employers and offered as an employee benefit.

While there are some standard policies on the market, GIP allows employers to choose a policy that fits their business needs and budget. Businesses can pick and choose how long a policy runs for, whether it’ll be fully-funded by the company or part-funded with the employee, what percentage of salary it pays out, which employees get it and how long they have to be off work before the benefit kicks in. These will all impact on how much the premium costs the company.

Note that some insurance providers don’t sell direct to the employer, but go through an insurance broker or adviser.

Individual Income Protection

People can get Income Protection individually through a broker or IFA, and, in some cases, directly from an insurance provider. However, not all insurance providers sell Individual Income Protection, and people wanting to take out an individual policy should ideally speak to an IFA. The IFA will be able to suggest policies that suit the person’s particular circumstances, and possible providers.

For a list of IFAs, visit the Unbiased website.


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