What income protection is
Income protection is an insurance policy that pays a regular monthly benefit if you are unable to work because of illness or injury. It is not a lump sum and it is not tied to a list of named conditions — what matters is whether you are incapacitated from working, as defined in the policy.
It is designed to replace part of your earnings, not all of them. Insurers deliberately cap the benefit below your normal income so there is always a financial reason to return to work.
When it starts paying — the deferred period
The deferred period is how long you must be unable to work before the benefit begins. You choose it, and it is one of the biggest levers on the premium: a longer wait costs less.
The sensible choice is not the shortest one you can afford. It is the one that matches how long you could genuinely manage first — employer sick pay, savings, a partner’s income. Paying for cover that starts before you actually need it is a common and avoidable waste.
How long it keeps paying — the benefit period
Two broad shapes exist. A short-term policy pays for a limited period per claim — commonly one or two years — and then stops, whether or not you have recovered. A full-term policy can keep paying until you return to work, or until the policy ends, whichever comes first.
Short-term cover is cheaper and is genuinely useful. But it is important to understand what you have bought: it protects against a serious interruption, not against never working again.
If the whole point of the cover is the mortgage, it is worth asking what happens in year three of a long-term absence under a two-year policy.
Employer sick pay — check before you buy
If you are employed, your sick pay arrangements decide what cover you actually need. Some employers pay full salary for months; many pay very little beyond the statutory minimum.
This is the single most useful thing to establish before an appointment. It sets the deferred period, and it can change the amount of benefit worth taking.
If you are self-employed
There is no employer sick pay, so the deferred period is doing all the work. For many self-employed people the exposure starts within weeks rather than months.
How income is evidenced also differs. Insurers generally look at the profits you declare rather than business turnover, which can come as a surprise to anyone who has been reinvesting heavily or drawing modestly.
If you are newly self-employed, how your income is assessed may differ again. That is worth raising early — the same issue arises on the mortgage side, which we cover on our self-employed mortgages page.
If you are a company director
Directors often draw a modest salary with dividends on top, which does not always look like "income" to an insurer in the way the director expects. Some providers will consider dividends; the treatment varies.
There is also the question of whether cover is arranged personally or through the company, which has consequences we would not attempt to summarise generically on a web page. It needs a conversation, and usually a word with your accountant.
The mortgage and the rest of your outgoings
A practical way to size cover is to work out what genuinely has to be paid every month if you earn nothing: the mortgage, factoring or service charges, council tax, utilities, food, travel, childcare.
That figure is usually lower than full salary and higher than people guess. It is also the figure that makes the decision concrete rather than theoretical.
Income protection or critical illness cover?
They answer different questions and they are not alternatives so much as different tools.
- Income protection — Pays monthly, while you cannot work, regardless of the specific diagnosis. Protects earnings.
- Critical illness cover — Pays a lump sum on diagnosis of a listed condition meeting the policy definition, whether or not you stop working. Protects against a one-off financial shock.
If you can only arrange one and your mortgage depends on your earnings, income protection usually addresses the more probable risk. Many households end up with some of each. More on our critical illness cover page.
Why the maximum you can cover differs between providers
There is no single industry maximum, and any page quoting one percentage figure as universal is oversimplifying. Each insurer applies its own formula to work out the most benefit it will offer, and those formulas genuinely differ.
Aviva, for example, publishes an adviser-facing maximum benefit calculator for its Income Protection+ product which works from gross earnings and applies its own limits. Other providers define earnings differently, treat dividends and bonuses differently, and set different ceilings.
The practical consequence is that the same applicant can be offered materially different benefit levels by different insurers. That is one of the clearer cases where going through it with an adviser changes the outcome rather than just the paperwork.
Underwriting, at a high level
Income protection is underwritten on health and occupation. Your job matters as much as your medical history — physical and manual occupations are generally rated differently from desk-based ones, because the definition of being unable to work bites differently.
Existing medical conditions do not necessarily prevent cover. They may lead to an exclusion, a higher premium, or a different insurer being more suitable.
We do not collect medical information at enquiry stage. That belongs in the advised conversation and the insurer’s application.
How our advice works
We start with your sick pay, your fixed outgoings and what you already hold, then look at which providers treat your income and occupation most sensibly.
Appointments are normally carried out by telephone, wherever you are in Scotland. Initial enquiries are always free.