Building a safety net: A guide to income protection
13 September 2021
18 December 2023
Access to Insurance, James Moorhouse
An introductory guide about the need for income protection, the products available and how to incorporate rehabilitation.
What is income protection?
Income Protection (IP) insurance protects against a financial loss if a person finds they are unable to work for health or disability reasons. It works by paying a regular income to the insured if their illness, injury or disability prevents them from working, following a ‘deferred period’, and until the end of the benefit term or cease age. The policy benefits will also stop if the policyholder returns to work or dies.
The main benefit of having an income protection policy, or being a member of an employer-provided policy, is that the insured person can continue to pay their bills, rent or mortgage if they are unable to work due to an illness or injury.
There are two main types of income protection:
Individual income protection (IIP): When an individual protects a portion of their earnings independently by purchasing cover through an independent financial adviser (IFA), an insurance broker or directly from an insurance provider.
Group income protection (GIP): Employer-provided income protection insurance that protects their employees’ income. The employer is the policyholder, premiums are submitted to the insurer by the employer and claims are generally paid to the employer to pass on to the employee through the PAYE system as reduced salary.
Access to Insurance
This guide was written in collaboration with the Professionalism Workstream of the Access to Insurance Working Group, alongside several other subject matter experts in the financial services sector:
- Kevin Carr Managing Director, Carr Consulting and Communications; Chief Executive, Protection Review; and Former Co-Chair, Income Protection Task Force (IPTF)
- Monica Garcia Health and Wellbeing Insurance Consultant, Monica Garcia Consulting
- Shayne Halfpenny-Ray Chair, Professionalism Workstream of Access to Insurance Working Group; and Public Affairs Manager, Chartered Insurance Institute (CII)
- Richard Kateley Protection Consultant
- Alan Knowles Managing Director, Cura Financial Services; and Chair, Protection Distributors Group (PDG)
- Ian McKenna Director, Financial Technology Research Centre
- Roy McLoughlin Associate Director, Cavendish Ware; and Former Co-Chair, Income Protection Task Force (IPTF)
- James Moorhouse Policy and Public Affairs Content Manager, Chartered Insurance Institute (CII)
- Katharine Moxham Spokesperson, Group Risk Development (GRiD); and Co-Chair of the Access to Insurance Workplace Workstream
- Martin Shaw Chief Executive, Association of Financial Mutuals
- Johnny Timpson Cabinet Office Disability and Access Ambassador for the Insurance Industry; and Prime Minister’s Champion Group Member.
- Andy Walton Protection Proposition Director, Mortgage Advice Bureau (MAB)
- Ron Wheatcroft Technical Manager, Swiss Re; and Co-Chair of the Access to Insurance Workplace Workstream
- Andrew Wibberley Director, Alea Risk; and Co-Chair, Income Protection Task Force (IPTF)
Purpose of the guide
This guide provides an overview of income protection by identifying the need for this product, the types of product available and how to create a return-to-work plan. It does this by exploring the following:
- What income protection is
- What Individual Income Protection (IIP) is
- What Group Income Protection (GIP) is
- How to incorporate rehabilitation and a return-to-work plan
- What business protection is
- How to underwrite income protection
- How to protect mortgage borrowers and renters
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.