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What is long-term income protection?

Long-term income protection is a type of insurance that can replace a portion of your income if you become seriously ill or permanently disabled. It’s designed to cover you if you’re unable to work for an extended period of time – or even if you never work again.

What’s the difference between short and long-term income protection?

Short-term income protection policies are sometimes known as accident, sickness and unemployment policies. Usually, they only pay out for one or two years. 

There are several different short-term policies. These include payment protection insurance and mortgage payment protection insurance (MPPI). Both mean that you won’t default on any outstanding loans. You’ll also find short-term policies that pay out if you’re unable to work. 

By contrast, long-term protection can provide a regular, tax-free income if injury or illness means you’re unable to work for a longer period. It’s sometimes called permanent health insurance.

What does long-term income protection cover me for?

If you take out a long-term income protection policy, you’ll be protected against accident and sickness.

If illness or injury leave you unable to work, your policy will cover a set proportion of your income. With some policies you can claim more than once. That means if you’re ill, then recover but fall ill again, you could still claim. 

And if you were to suffer from a serious disease or condition, like cancer or a permanent disability, the policy could pay out until you retire, die or become well enough to work again.

As with any type of insurance, policies can vary, so always read the terms and conditions carefully to make sure you understand exactly what you’re covered for.

Do I need long-term income protection?

It’s not a legal requirement to have long-term income protection, but it could be very useful. To decide whether you need it, here are some questions to ask yourself:

  • Would state benefits be enough to support your current lifestyle if you had to stop working? Your employer can tell you what employee benefits you’d be entitled to and you might find you’re eligible for comparable cover through a staff benefit scheme.
  • If your spouse or partner is working, would you be able to cope long term on their income alone?
  • Would you be able to live off any savings you have until you reach retirement age?
  • If you’re not working – say you’re a stay-at-home parent or a carer – and you become ill, would you be able to pay someone else to help with your daily tasks at home?

Suffering a sudden loss of income, as well as the trauma of an accident or illness, can have a huge impact on you and your family. Long-term income protection could give you the peace of mind that if something happens to you, your financial future is protected.

What should I look out for when buying long-term income protection?

You’ll want to make sure you get the right income protection insurance policy for your needs.

  • Check with your employer Before you take out a policy, check what employee benefits you’re eligible for. You might already have similar cover under a staff benefit scheme.
  • Don’t scrimp on cover If you’re planning long-term protection, don’t be tempted by a cheaper short-term plan if it’s not enough to cover your future needs.
  • Exclusions Remember to check what the policy doesn’t cover before you buy, so you’re not faced with any nasty surprises if you try to make a claim. Common exclusions can include unemployment for a reason other than accident or illness, accidents or illness from drug or alcohol abuse, pregnancy, or self-harm.

Frequently asked questions

What’s the difference between long-term income protection cover and critical illness cover?

Critical illness cover pays a lump sum if you’re diagnosed with a specific illness, such as cancer.

Income protection pays a regular income for a set period of time if you’re deemed too ill to work, regardless of the condition. This can include mental illness if you have long-term cover.

What types of long-term income protection can I get?

Long-term income protection policies generally offer two main levels of cover, based on your incapacity following an accident or illness:

  • Own occupation – this lets you make a claim if an accident or illness prevents you from carrying out any aspect of your job. It tends to be the more expensive option, but also the most comprehensive.
  • Suited occupation – this level of cover only pays out if you’re unable to carry out any occupation suited to your level of experience and training. You won’t be able to claim if there are other jobs you can do.

House person cover may also be available. If you’re not working when you become ill, this type of cover could pay for someone else to help with your daily living tasks.

How long does long-term income protection cover last?

Most policies run for a minimum of five years and will go on until you reach your planned retirement age. You might want a policy that lasts until you plan to retire. That way, you’ll have earnings cover in place for the rest of your working life.

How much of my income will the policy cover?

That depends on how much you earn and which premium you choose. In many cases, you can insure a set percentage of your pre-tax earnings, usually between 50% and 65%, but the percentage could be as high as 70%.

Think about how much you want to protect. As a minimum you’d want to cover your essential monthly outgoings like rent or mortgage payments, household bills and any debts – plus an allowance for everyday spending.

What can I use income protection for?

There are lots of reasons why income protection could be useful:

  • to cover rent or mortgage repayments
  • to repay a loan, credit card, car finance or other debts
  • to cover your monthly living costs like food shopping, clothes, utility bills and internet
  • to cover general lifestyle costs like holidays, school trips and weekends away.

How much does long-term income protection cost?

The cost of your premium will depend on a number of things, for example:

  • Your age – the younger and fitter you are, the cheaper your premium should be as there’s less risk of you falling ill.
  • Your job – if your occupation is high risk, like a builder or firefighter, your premium will typically be more expensive than that of, for example, an accountant.
  • The length of your policy – a policy that lasts up to retirement age will cost more than one that only lasts for a few years.
  • The length of your deferred period – typically, the longer the waiting period for the policy to kick in (the deferred period), the cheaper your premium will be. This is because your insurance provider will have less to pay.

What is a deferred period?

The deferred period is the time you’d have to wait before your policy kicks in and starts delivering. It makes sense to arrange for the policy to start paying out when your employee sick pay stops. You’ll need to check your contract, as this will vary between employers. 

It’s worth remembering that the longer the deferred period is, the lower your premium is likely to be.

Can I get long-term income protection if I’m self-employed?

Yes, you can. If anything, long-term income protection could be even more important if you work for yourself. As a sole trader you won’t enjoy some of the same rights as an employee, and nobody pays you for time off if you’re sick or injured.

Find out more about self-employed income protection.

Will my policy cover unemployment?

Most long-term income protection policies are designed to cover accident and sickness only. Short-term income protection can cover you for accident, sickness and unemployment if you’re unable to work for a short period of time.

What happens to my income protection policy if I change jobs?

You should tell your insurance provider if you change jobs during your policy term (the length of your policy). If you don’t, it could invalidate your cover. If your new job is considered a higher risk than your previous one, the cost of your premiums could go up. On the other hand, if it’s lower risk, you might pay less.

How do I compare long-term income protection?

Comparing long-term income protection through Compare the Market is quick and easy. Just fill in the details and let us know what type of cover you’re interested in.

Policies may vary slightly among providers, so it’s always a good idea to check the details and features of each one, to make sure you get the right cover for you.

What do I need to get a quote?

We’ll need you to answer a few questions about:

  • the kind of job you do
  • your health
  • if you’re employed or if you’re self-employed
  • if you’re a smoker or if you use nicotine-based products
  • the deferred period you want
  • the amount of cover you’re looking for, based on your monthly income

We’ll then send you a list of suitable quotes, so you can compare them.

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Mubina Pirmohamed

From the Life team

What our expert says…

Before taking out income protection insurance, check your employment contract to see if you’re already covered under your sick pay arrangements. And check if you’re entitled to any state benefits if you’re unable to work. This won’t prevent you from taking out income protection cover, but some insurance providers may reduce the pay-out amount if you also receive state benefits.”