Finance glossary
Income Protection Insurance
Also known as: IP insurance, Permanent health insurance
In simple terms
Income protection pays you a regular replacement income if you cannot work because of illness or injury, usually until you recover, retire or the policy ends.
On this page
What does income protection mean?
Income protection insurance pays a regular, usually tax-free income to replace part of your earnings if you are unable to work due to illness or injury. Unlike critical illness cover, it pays an ongoing income rather than a one-off lump sum.
It is designed to keep your household finances going while you cannot earn.
How income protection works
You choose the level of cover, a “deferred period” before payments start (often matching your sick pay), and how long payments can last. If you cannot work due to a covered condition, you claim and receive the income until you recover, return to work, retire or the term ends.
Premiums depend on your job, health, age and the options chosen.
How could this affect me?
Income protection can be a financial lifeline during long-term illness, filling the gap that limited sick pay and state benefits leave. Check the definition of “incapacity” — “own occupation” cover is more generous than “any occupation”.
The deferred period and payment term affect both the cost and how well it fits your other cover, such as employer sick pay.
Things to watch out for
- “Any occupation” definitions are stricter than “own occupation”.
- Payments only start after the deferred period you choose.
- Not disclosing health information can invalidate a claim.
Know your rights
- The Consumer Insurance (Disclosure and Representations) Act 2012 requires you to take reasonable care answering the insurer’s questions.
- FCA rules require fair, prompt claims handling; you can complain to the Financial Ombudsman Service.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Income protection insurance (opens in a new tab). Accessed 22 Aug 2026.