Income Protection Explained: Employees and the Self-Employed

Income protection pays a regular monthly benefit if you cannot work because of illness or injury. Many households rely on one or two incomes to pay the mortgage, so a long period off work can quickly put repayments under pressure. This guide explains how income protection works, how it fits with sick pay and what self-employed people and company directors should check.

How does income protection work?

If you are unable to work because of illness or injury and a claim is accepted, the policy pays a monthly benefit after an agreed waiting time, known as the deferred period. Payments continue until you return to work, the benefit period ends or the policy reaches its end date, whichever comes first. Most policies cover a wide range of conditions rather than a fixed list, and many allow you to claim more than once during the term.

The benefit is normally limited to a percentage of your earnings, often around 50% to 70% of gross income, because the aim is to replace part of your income rather than exceed it.

Choosing the deferred period

The deferred period is how long you must be unable to work before benefit starts. Common options are 4, 8, 13, 26 or 52 weeks. A longer deferred period usually means a lower premium. The right choice depends on how long your employer would keep paying you and how long your savings would last.

Income protection and sick pay

Check your contract or staff handbook to see what your employer pays if you are off sick. Some employers pay full salary for a period, then half pay, then nothing. Others pay only Statutory Sick Pay. Since April 2026, Statutory Sick Pay has been payable from the first day of absence, but it is still a modest weekly amount and is paid for a maximum of 28 weeks. For most people, it would not cover a mortgage payment, let alone other bills.

Setting your deferred period to start when employer sick pay ends can keep premiums down while avoiding a gap in income.

Full or limited benefit period?

Full-term policies can pay out until the end of the policy, often your planned retirement age, if you remain unable to work. Limited or short-term policies pay for a set period on each claim, commonly one, two or five years. Limited cover is cheaper, but it may not protect you against a long-term illness.

How is incapacity defined?

Check how the policy decides whether you can claim. Own occupation cover pays if you cannot do your own job. Other definitions, such as suited occupation, may only pay if you cannot do your own job or a similar job suited to your skills and experience. Own occupation is generally the broadest definition, but it is not available for every occupation.

Income protection for the self-employed

If you are self-employed, there is no employer sick pay and you cannot claim Statutory Sick Pay. If you cannot work, your income may stop almost immediately while your mortgage, business costs and household bills continue.

Insurers assess self-employed income using evidence such as tax calculations and tax year overviews. Our guide to SA302s and tax year overviews explains these documents. Things to consider include:

• how the insurer will calculate your earnings, for example, as an average over recent years;

• whether a shorter deferred period is needed because you have no sick pay;

• how long your business savings could cover your personal costs.

Company directors and contractors

If you run a limited company, your income may be a mix of salary and dividends, and insurers can treat these differently. Some directors also consider executive income protection, which is owned and paid for by the company. Contractors should check how day-rate income will be assessed. Ask us to explain which approach fits your circumstances, and see our guide to contractor income evidence.

What affects the cost?

Premiums depend on your age, health, occupation, smoking status, the amount of benefit, the deferred period and the benefit period. Manual or higher-risk occupations usually cost more to insure. Guaranteed premiums stay the same for the life of the policy, while reviewable premiums can change.

Is income protection worth considering?

Ask yourself how long you could keep paying your mortgage and bills if your income stopped. If the answer is not long, income protection may be worth exploring. It can sit alongside life insurance for your mortgage and critical illness cover, which pay lump sums in different circumstances.

Speak to PMS Mortgages

We help clients in Croydon, Purley, Surrey and across the UK review protection alongside their mortgage. Read more about income protection advice, see our guide for self-employed mortgage applicants, or book a consultation.

Further reading

MoneyHelper: what is income protection insurance?

General information, not a personal recommendation. Cover is subject to the insurer’s underwriting, terms, conditions and exclusions. PMS Mortgages will explain any advice fee before you proceed.