Income Protection Calculator (UK)

Income Protection Guide (UK)

What is Income Protection?

Income protection (IP) pays a tax-free monthly income if you cannot work due to illness or injury. Continues paying until you can return to work, the policy ends (usually age 65-68), or you die. Significant difference from critical illness cover: IP pays a regular income (replaces wages) whereas CIC pays a one-off lump sum on diagnosis of specified conditions. IP covers any inability to work — not a list of specified illnesses. Long-term IP: pays until retirement age or recovery, whichever comes first, providing an ongoing income replacement rather than a one-off lump sum.

What should I know about Deferred Period?

Deferred period: the wait between becoming unable to work and payments starting. Common deferred periods: 4 weeks, 8 weeks, 13 weeks, 26 weeks, 52 weeks. Longer deferred period = much lower premium. Premiums roughly halve when going from 4 weeks to 26 weeks. Choose based on: how long can you cover yourself without IP payments? Emergency savings + employer sick pay = covered period. If employer pays 13 weeks full sick pay and you have 3 months expenses saved: 26-week deferred period bridges naturally into your income protection payments starting, without a gap in support.

What's the key thing to understand about Benefit Level?

Maximum monthly benefit insurers will pay: typically 50-65% of gross income (some insurers up to 70%). Why capped: insurers want to incentivise return to work — too high a benefit creates moral hazard. Aim for net income replacement. IP payouts are tax-free (paid from premiums you've paid from net income). So 50% of gross income often roughly equals 65-70% of net take-home pay — close to maintaining living standards. Choose what you can afford to pay premiums on, balanced against essential outgoings like your mortgage or rent, rather than trying to replace your full take-home pay.

What's the key thing to understand about Premium Cost Drivers?

Same factors as critical illness cover, plus: occupation rated more carefully for IP (since occupation directly affects claim probability). Lower-risk office-based jobs: cheapest premiums. Manual trades, healthcare, emergency services: higher premiums. High-risk occupations (offshore, certain medical specialties): may need specialist insurers. Indicative monthly premiums for £2,000/month benefit, age 35, non-smoker, 13-week deferred period, to age 65: clerical/IT/management work: £25-45/month. Higher-risk manual or physically demanding occupations: £45-90/month or more, reflecting the greater likelihood of a claim.

What's the key thing to understand about How Much Cover You Actually Need?

Income protection is typically set to replace a percentage of gross income — commonly around 50–65% — rather than 100%, partly because insurers want to preserve an incentive to return to work, and partly because a claimant's actual take-home needs often fall once income tax, National Insurance, and pension contributions are no longer being deducted from the benefit. When working out a target level of cover, it helps to start from essential monthly outgoings — mortgage or rent, utilities, food, debt repayments, insurance — rather than full previous income, since this is the amount that genuinely needs replacing to avoid financial hardship during a claim. Any other income protection already in place matters too: some employers provide a group income protection benefit, sick pay schemes that continue salary for a period, or critical illness cover that could offset part of the need. Self-employed people and contractors, who usually have no employer sick pay safety net at all, often need relatively more income protection cover than employees with generous employer benefits, since there's no other income replacement bridging the gap between falling ill and a claim paying out.

What should I know about Deferred Period and Claim Term Choices?

Two of the biggest factors affecting an income protection premium — and how useful the policy actually is in practice — are the deferred period and the claim payment term. The deferred period is how long you must be unable to work before payments start, ranging from as little as a week or four weeks up to a year or more; choosing a longer deferred period lowers the premium significantly, but only makes sense if you have enough savings, sick pay, or other income to bridge that gap comfortably, since a six-month deferred period is of no help if you run out of money in month three. The claim term determines how long payments continue once a claim starts — some policies pay out for a short fixed period (say two years) per claim, which is cheaper but leaves a gap if the condition is long-term, while others pay right up to a chosen retirement age for as long as the person remains unable to work, which costs more but provides genuine long-term security. Matching the deferred period to your actual savings buffer, and the claim term to how exposed your finances would be to a long-term absence, usually matters more for value than simply picking the cheapest headline premium.

Worked Example: Setting a Benefit Level

Income protection typically covers a percentage of gross or net income, not 100% of it, both because insurers want to preserve an incentive to return to work and because the benefit is often paid tax-free if premiums were paid personally (or taxable if paid via an employer-arranged scheme).

In this example, a £42,000 salary supports a monthly benefit of around £2,100 at a typical 60% insurable level, but if the policy is designed to sit alongside residual employer sick pay rather than replace it entirely, the actual payable amount while sick pay is still running might be reduced to £1,700. This layered approach avoids over-insurance (insurers generally won't allow combined sick pay and income protection benefit to exceed take-home pay, since that could remove the incentive to return to work) while still closing most of the gap once statutory or contractual sick pay runs out, which for many employees happens within the first few months of a long-term absence.

Own Occupation vs Any Occupation Definitions

The single biggest factor in how useful an income protection policy turns out to be in practice isn't the premium or the benefit amount — it's the "occupation definition" buried in the policy wording. An "own occupation" policy pays out if the policyholder can't do their specific job (a surgeon who develops a hand tremor and can no longer operate, for example, even if they could theoretically do desk-based admin work instead). An "any occupation" or "suited occupation" policy only pays out if the policyholder can't do any job they're reasonably qualified for by training or experience, which is a much higher bar to meet and results in far fewer successful claims for the same illness or injury. Own occupation cover costs more in premium but is considerably more valuable for people in specialised, physical, or highly skilled roles where a health change could end that specific career while leaving them capable of other, lower-paid work. Some insurers offer a middle tier, sometimes called "own occupation for a limited period then any occupation," which pays the own-occupation definition for the first one or two years of a claim and then switches to the stricter any-occupation test if the claim continues — a useful compromise on premium cost that's worth understanding fully before assuming two policies quoted at similar prices offer equivalent real-world protection.

Guaranteed vs Reviewable Premiums

Income protection policies are typically sold with one of two premium structures, and the difference has a significant effect on long-term affordability even when the initial quote looks similar. A guaranteed premium is fixed for the life of the policy at the point of purchase (aside from standard age-banding increases built in from the start), giving complete certainty over cost for budgeting purposes, but usually starts noticeably more expensive than the alternative. A reviewable premium starts cheaper but can be increased by the insurer periodically, commonly every one to five years, based on the insurer's updated view of claims experience across its whole book of similar policies, not just anything specific to the individual policyholder's own health or claims history. This means a reviewable premium can rise substantially over time for reasons entirely outside the policyholder's control, and a policy that looked like the cheaper option at outset can become the more expensive one a decade later. Anyone comparing quotes side by side should check which structure each one uses rather than assuming the lower initial quote is automatically the better long-term deal.