Income protection pays out a regular income following a valid claim, while critical illness cover pays out a one-off lump sum that can be used to clear debts, pay for treatment or make lifestyle changes.

The cost of cover depends on your age, health, and occupation, as well as the level of cover and policy duration.

Payouts from protection insurance policies you have set up yourself (not through an employer), whether as a lump sum or regular income, are usually tax-free.

If you are unable to work due to a serious illness or injury it can be extremely stressful, particularly if you do not have employee sick pay or savings to fall back on. A protection insurance policy offers peace of mind that you and your family would have financial support during a difficult time.

This financial safety net could be even more important in the current economic climate, where the cost of living has risen sharply and the NHS is under strain.

Here we explore the main types of protection cover to help you make the right choice for you and your family.

The payout from a protection policy can be used to cover day-to-day living costs, or to pay off debts, such as a mortgage. Alternatively, it could provide funds to adapt your home, to access private healthcare, or for a combination of these things.

Thinking about risks

No one wants to think about the possibility of falling ill – which is perhaps why many people put off buying protection cover. But asking yourself how you and your family would manage financially if you were unable to work due to illness can focus the mind and encourage proactive planning.

Having a serious illness which affects your ability to work could be particularly difficult for the 4.37 million self-employed workers in the UK who are ineligible for statutory sick pay (SSP).1

Those who qualify for SSP can receive £118.75 per week for up to 28 weeks, but this could be insufficient for anyone covering a mortgage, supporting their family or caring for dependants.

If you are an employee, it is worth looking into whether your employer offers any long-term sickness benefits and for how long they would pay out. Many workplace income protection schemes cover their employees for around six months, for example, but this varies.

A long-term safety net

Unfortunately, some illnesses last far longer than a few months – and this is where financial protection can add significant value.

Income protection insurance provides a regular monthly income if you are unable to work and have made a successful claim, helping you maintain financial commitments such as paying your mortgage.

The insurance market offers a broad range of policies to suit your needs, with policies usually offering cover between 50% and 70% of your gross salary.

Cover will usually include a wide range of illnesses and conditions including many types of cancer, heart attacks, strokes, and some mental health conditions, as well as physical injuries, depending on the insurer.

Most income protection policies include a deferred period – how long you wait from making a successful claim until you get the first payment – which can range from one month to one year. Shorter deferred periods usually result in higher premiums.

Your age, state of health and occupation also affect the price of your policy.

The market also offers different options on the type of premium. With a guaranteed premium policy, your premium is fixed for the duration of the policy term. In contrast, with a reviewable premium the monthly premium amount is likely to rise over time, typically being reviewed every five years. Some income protection policies offer premiums that increase in line with inflation (inflation-linked premiums) and some insurers also offer age-banded premiums which increase as you get older.

The cost of a policy depends on other elements of your cover too. You can choose between long-term or short-term income protection, where long-term cover options continue to pay out until you reach retirement age, for example. Short-term cover pays out for a limited time, and usually costs less than long-term cover.

Definitions & exclusions

When choosing an income protection policy, it is important to understand how it defines illness or incapacity.

If you take out an income protection policy that includes the ‘own occupation’ definition of incapacity, your policy will pay out when you are unable to carry out your specific job.

This differs from ‘suited occupation’ policies, where you may be required to return to a different job that matches your skills and experience. In this case, your policy provider will ascertain what is a suited occupation based on your training, skills and qualifications.

‘Any occupation’ policies offer the lowest cover level, where you can only claim if you are unable to perform any type of work.

Choosing the wrong definition can lead to a rejected claim. This is why it is essential that you understand the definition of incapacity in your policy and ensure that it is suitable for your needs and occupation.

Claims can also be rejected based on failure to disclose any pre-existing conditions or if the policyholder has given incorrect information.

Navigating your options

If your employer offers income protection insurance as an employee benefit, it is worth checking the level of cover offered, and that the deferred period suits your circumstances.

If the level of workplace cover is insufficient, you could complement it with a private policy. For instance, if your employer offers six months of income protection, you may want to choose a private income protection plan with a six-month deferred period so that the payments start when the employer benefit stops.

If you hold multiple policies, insurers usually limit the amount you can receive to a total maximum percentage of your income – typically up to 70% of your gross income, for example. It means that if your workplace policy covers most of this amount, the other policy may pay only a partial amount or nothing at all.

Covering one-off costs

Even well-planned estates can stumble if the right provisions aren’t in place for beneficiaries to pay an IHT bill.

The tax is due within six months of the end of the month of death. Some estates consist primarily of assets that aren’t readily convertible, such as farmland, business interests and property. If there is not enough money to pay the tax, beneficiaries may be forced to sell other assets in a hurry, sometimes to their detriment.

If you think liquidity will be a problem for your loved ones, consider taking out whole of life or fixed term life insurance written into trust. This is designed to provide a cash lump sum on death to pay the IHT.

A just-in-case plan

Critical illness and income protection policies offer financial security for people who have ongoing responsibilities should they be too ill to work. This can be a lifeline during periods of severe illness.

Most people buy protection insurance to avoid taking on debt to modify their home, pay their bills or regularly provide for their family during such times.

In a market offering a wide variety of protection options, it can feel daunting trying to choose a policy to suit your needs. This is where professional advice becomes invaluable – to help you narrow down the choice and select the right cover for you. Contact Liberty for further information.

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The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that these protection plans do not have a cash-in value and will stop if payments to them cease.

Links from this website exist for information only and we accept no responsibility or liability for the information contained on any such sites. The existence of a link to another website does not imply or express endorsement of its provider, products or services by us or St. James’s Place.

Source
¹ Office for National Statistics: EMP14: Employees and self-employed by industry – February 2026

SJP approved 26/02/2026

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