Income protection insurance (IPI) is designed to pay out an income when an accident or serious illness prevents someone from earning a living through their normal occupation. Many insurers also offer IPI to people whose main responsibilities are performed at home, for example looking after children full time, rather than earning money outside of the home. This is because, although they may not actually generate an income as such, costs may be incurred if they are ill or injured – for example, childcare fees or care services.

According to the ABI (the Association of British Insurers), in 2017 over a million people were unable to work because of some form of illness. IPI is designed to provide protection in such circumstances. People need to take into consideration their ability to cope should a situation arise, and work out how to meet the requirements of paying their outgoings whilst unable to work. IPI (sometimes referred to as permanent health insurance) is a long term form of cover formulated to protect a person should they be unable to work due to sickness or injury. The system allows you to receive regular income until the person is fit for work or retires. If a person is unable to work through disability or illness, it replaces part of your income and continues to be paid until you go back to work, retire, die, or the end of the term is reached. It depends which comes sooner.

IPI is available as a standalone policy, either as a pure protection plan or on a unit-linked basis. IPI can also be available as an option on a universal whole-of-life plan.

Quite often there is a waiting period before payments commence. Payments are set to begin when sick pay ends or any other insurance cover ceases. The monthly premiums are lower the longer you wait. The cover caters for a variety of illnesses that render a policyholder unable to work, but this depends on the type of policy and how it defines incapacity. For as long as the policy lasts, you can claim as little or as many times as you like.

Getting the right policy is key when it comes to IPI, so it is recommended that a person seeks independent advice from a financial expert. Short-term income protection only pays out for a limited period of time (2 to 5 years as standard) and covers fewer situations and illnesses.