Protect your income if illness or injury prevents you from working. Income protection provides a monthly benefit to help cover your mortgage, bills, and everyday living costs until you're able to return to work.
An income protection policy pays a monthly, tax-free benefit if illness or injury stops you from working, typically up to 60-70% of gross earnings. For contractors, the better insurers base this on your contract income rather than tax-efficient drawings. Every policy also has a deferred period — the wait between stopping work and the benefit starting, usually four weeks to twelve months. Choosing a longer deferral lowers your premium, since you're self-insuring the early weeks from savings; a contractor with six months of expenses in reserve, for example, could opt for a 26-week deferred period and cut costs substantially versus a four-week wait.
The other key decision is benefit duration. Full-term policies pay until you recover, return to work, or reach retirement, while budget policies cap claims at one or two years, lowering premiums but leaving long-term illness uncovered. Our honest advice: for most contractors, a full-term policy paired with a longer deferred period beats a budget policy with a short one
The cost of contractor income protection depends on several factors. Understanding these helps you choose a policy that provides the right level of cover while keeping premiums affordable.
Younger applicants generally pay lower premiums, while the cost of cover increases as you get older.
Your medical history, smoker status, and overall health influence both your premium and the insurer's underwriting decision.
The more monthly income you choose to protect, the higher your premium will be. Most insurers allow cover of around 60% to 70% of your gross earnings.
Choosing a longer waiting period before benefits begin can significantly reduce your monthly premium if you have savings to cover the initial weeks.
Policies that provide cover until retirement usually cost more than short-term plans, but they offer far greater long-term financial security.
Your profession and the level of occupational risk affect pricing. Desk-based contractors often pay lower premiums than those working in higher-risk physical trades.
The way an insurer calculates your earnings plays a crucial role in determining how much income protection you can receive. Choosing a contractor-friendly insurer ensures your policy reflects your true earning potential, giving you the right level of financial protection if you're unable to work.
Limited company contractors often take a modest salary alongside dividends for tax efficiency. The best contractor-focused insurers assess your earnings using salary plus dividends, and some will even base cover on your gross contract value instead of salary alone.
When you make a claim, insurers verify your pre-incapacity earnings against the agreed income basis. Setting up your policy correctly from the start helps ensure there are no disputes or reductions in benefits due to an incorrect earnings definition.
Income protection policies define incapacity in one of several ways, and the definition determines when the policy pays. ‘Own occupation’ cover pays if you cannot do your own job — a software developer who cannot code, a surveyor who cannot site-visit. ‘Suited occupation’ and ‘any occupation’ definitions only pay if you cannot do any work you are suited to, which is a far harder test to meet.
For skilled contractors, own occupation cover is the only definition worth holding. The premium difference is modest; the difference at claim time is enormous. Every policy we recommend for contractor clients is own occupation unless there is a specific reason it is unavailable.
Limited company contractors can choose between a personal income protection policy (paid from post-tax income, benefit paid tax-free) and an executive income protection policy owned and paid for by the company. Executive IP premiums are usually an allowable business expense, reducing corporation tax, and the benefit is paid to the company, which then pays you through payroll.
The executive route can cover a higher proportion of earnings — up to 80% including employer pension and NI contributions in some cases — and is often more tax-efficient overall. The benefit paid through payroll is taxable, which partially offsets the premium saving, so the right answer depends on your numbers. We model both routes and recommend the one that delivers more net benefit per pound of premium.
Income protection and a mortgage are natural companions: the mortgage creates the obligation, and income protection secures the income that services it. Many contractor clients arrange both together, sizing the IP benefit to cover the mortgage payment plus essential household costs.
Arranging protection at the same time as the mortgage also captures you at your current age and health — both of which only move in one direction for premium purposes. We review protection as a standard part of every contractor mortgage conversation, with no obligation to proceed.
Most insurers cover up to 60% to 70% of gross earnings, with contractor-aware insurers assessing earnings on salary plus dividends or contract value rather than salary alone. Executive policies through your limited company can reach up to 80% including pension and NI contributions. We calculate the maximum available across insurers and recommend the right level — which is sometimes less than the maximum, sized to your actual essential outgoings.
Yes — mental health is one of the most common causes of income protection claims, and legitimate claims for stress, anxiety and depression are paid where the condition prevents you from working. Insurers vary in their assessment approach and exclusions, and disclosure of any pre-existing mental health history at application is essential. We advise on the insurers with the strongest mental health claims records.
Income protection covers incapacity through illness or injury — it does not pay out simply because a contract has ended. The policy continues during gaps as long as premiums are paid, and cover resumes its full relevance when you are working. Some insurers apply specific terms about how long you can be between contracts before a claim; we select insurers whose terms suit contracting patterns.
No. Payment protection insurance was a short-term product tied to specific debts, widely mis-sold, and paid for one to two years at most. Income protection is a long-term, individually underwritten policy that replaces a proportion of your income until recovery or retirement age. They share nothing beyond a superficial resemblance.
Yes — full-term income protection has no limit on the number of claims. If you recover, return to work and later suffer a different (or recurring) incapacity, the policy pays again, subject to the deferred period. This multi-claim nature is a key reason full-term policies outvalue budget alternatives over a contracting career.
That is its purpose — the monthly benefit is paid tax-free (on personal policies) directly to you and can be used for any purpose, with the mortgage payment usually first in line. We typically size contractor income protection so that the benefit comfortably covers the mortgage plus essential household costs.