Going into business on your own is a big step to take, and it doesn’t come without its risks. When running your own business, it’s vital to protect yourself and your firm from unexpected circumstances. To do this, you can research and invest in appropriate insurances to ensure your business can still survive if you are ill, injured or unable to work. This article will be a guide to income protection insurance, and we’ll dive into the following areas:

  • What is income protection insurance?
  • What does income protection insurance cover?
  • How much does income protection insurance cost?
  • How much does income protection insurance pay out?
  • Is income protection insurance the same as critical illness or PPI?

What is income protection insurance?

As a self-employed person, if you are unable to work, the money stops coming in. This is where income protection insurance, also called personal accident and sickness cover, comes in. 

This insurance is for if you are unable to work for a period due to illness or injury. This payout will usually be a weekly sum to cover bills and living expenses while you recover. If you cannot return to work, then the insurer will make a lump sum payment and how much will be stipulated in the contract. Income protection may also pay out if you have to take a significant reduction in income due to illness.

What does income protection insurance cover?

Income protection will usually cover most illnesses and injuries that will render you unable to work for both short or long term periods. Since you run your own business, you will have to read the small print to ensure that work-related injuries are covered too. The policy will usually cover the following areas:

  • It can replace your monthly income if you can’t work or a chunk of your income if you must reduce your workload.
  • It can cover you until your return to work or until retirement if you cannot return to work at all. Some policies will have a ‘limited claim period’ when the policy runs out, so always check the timeframe the policy covers.
  • You can usually claim as many times as you need to if the premiums are paid consistently.

Most IP policies will not pay out if your business goes bankrupt or you have to make yourself redundant as an employee of your company. 

How much does Income Protection Insurance cost?

The premium you’ll pay (monthly or annually) is based on a variety of factors:

  • Age.
  • Line of work.
  • If you smoke, drink, exercise and your general health.
  • How much of your income do you want to have covered.
  • How many years do you want the policy to protect you.


The cost will also be affected by your career or your industry. Usually, occupations are divided into classes based on the level of risk your work exposes you to in your everyday activities:

  • Lowest risk: Professional roles that are mainly desk-based.
  • Low risk: Roles that are less desk-based but require a small amount of physical activity or require high levels of travel for business.
  • Slight risk: Skilled manual workers and some semi-skilled workers who will move around a lot during their day, ranging from teachers to tradesmen like electricians and plumbers or other contractors.
  • Higher risk: Heavy manual workers and some unskilled workers whose roles require a lot of physical work, like mechanics or construction workers.

The riskier the type of job you have, the more likely you may need to make a claim. So those in the riskiest occupations tend to pay higher premiums.

How much does income protection pay out?

If you have to claim on your income protection policy, it will usually pay out between 50% and 70% of your income (depending on what is stipulated in your contract), and all payments are free of income tax.

Is income protection insurance the same as critical illness or PPI?

There are other insurances out there that might sound like they do the same thing as income protection, but what are the differences? 

Income protection vs critical illness

Critical illness cover is a policy that many people have as part of a life insurance policy. It pays out if you are ever diagnosed with a severe illness that can impact your ability to work or might even endanger your life. What conditions are covered will be detailed in the contract of the policy. This kind of policy usually pays out a lump sum and also will not pay out in the event of your death.

In contrast, income protection pays a percentage of your wage regularly to act in place of your wages to allow you to pay bills and living costs while you are unwell until you return to work.

Income protection vs PPI

Payment protection insurance was another type of ‘protection’ insurance that was widely mis-sold. However, PPI does not cover loss in income; it was to repay a specific debt. The policy would apply to one debt you had, such as a loan or a mortgage, and would pay out in the circumstances that you were unable to make the payments due to loss of income. The payout on PPI would never pass through your hands and instead would go straight to the bank/lender you owed.

PPI payouts are unlike the tax-free income you’ll receive if you have your income protected by an IP policy and find yourself unable to run your business and make money. 

If you want to look for an income protection policy, then look no further. To bring five-star Trustpilot-rated cover to small businesses like yours, we’ve partnered with insurance provider Superscript. Click here to get a quote in minutes.

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