If you think income protection would replace your full salary, it’s worth checking the small print. Most policies only let you insure somewhere between 50% and 70% of your eligible gross earnings, with the exact limit set by the insurer and product. For someone whose insurer accepts £60,000 of earnings for this purpose, that typically works out to a monthly benefit of around £2,500 to £3,500.
It’s a smaller number than people expect. A personally funded payout is normally tax-free, but it can still land below your usual take-home pay, so it’s worth working out what you’d actually need each month rather than assuming the maximum will cover everything.
Why Insurers Cap Cover (and Why You Shouldn’t Over-Insure)
Payouts are generally tax-free when you pay the premiums yourself from income you’ve already paid tax on, which is how most personal policies work. Employer-funded schemes can be taxed differently, so check how yours is treated. Insuring 100% of your gross salary would often mean being covered for more than you took home while working, which is part of why insurers don’t offer it.
Over-insuring also means paying higher premiums for cover you may never fully use. The right amount depends on your own outgoings, starting with your mortgage or rent, bills and anyone who relies on your income. Savings, a partner’s income or existing cover through work can reduce that need.
Employed vs Self-Employed: Different Starting Points
What you’d fall back on if you couldn’t work looks very different depending on your employment status.
If you’re employed, you may be entitled to Statutory Sick Pay (SSP). Under the April 2026 rules, eligible employees can receive up to £123.25 a week, or 80% of their average weekly earnings if that’s lower, for up to 28 weeks. Many employers add their own sick pay on top, so check your contract before insuring your full income from day one.
If you’re self-employed, you generally won’t have employer sick pay or SSP. Some sole traders may still have continuing business income, or could qualify for New Style Employment and Support Allowance depending on their National Insurance record, but this rarely replaces a full income. That’s why self-employed clients often look at cover that starts sooner. Limited company directors can be different again, since how income is split between salary, dividends and profit affects what you can insure, so it’s worth getting your setup checked.
The Deferred Period: Where Cost and Cover Meet
The deferred period is how long you wait after becoming unable to work before payments start, commonly 4, 8, 13, 26 or 52 weeks, though options vary by insurer. A shorter wait generally costs more. A longer one is cheaper but leaves a gap you’d need to bridge yourself. A higher benefit amount pushes the premium up too.
Aim to match it to when your own income would actually start to fall, not automatically the shortest option. If your employer pays six months of full sick pay, a four-week deferred period could mean paying for cover you can’t fully use, since many policies reduce or pause payments while sick pay continues. Someone self-employed with a month’s savings may need cover starting much sooner.
A Worked Example
Take a self-employed professional in London whose insurer accepts £60,000 a year of eligible earnings, generally what’s left after business costs, which can be lower than turnover. A policy covering 50% to 70% of that would pay roughly £2,500 to £3,500 a month, tax-free if they pay the premiums personally. Their London rent or mortgage is the first thing to check that against.
Self-employed income isn’t always straightforward. Insurers treat profit, salary and dividends differently, and if earnings have fallen by the time of a claim, the payout could be reassessed and come in lower than the figure originally insured. Some insurers also taper the percentage at higher incomes. This is where an adviser helps most, because insurers calculate it differently and comparing them across the market is hard to do alone.
The Amount Isn’t the Only Thing That Matters
How long payments last varies too. Some pay until you return to work, retire or the policy ends, while others cap each claim at a fixed period, such as one, two or five years.
The definition of being unable to work matters just as much. “Own occupation” cover looks at whether you can do your own specific job, while broader tests ask whether you can do any suitable work at all, which is harder to claim against. Check the exclusions too, including any medical conditions you already have. A cheaper policy with a narrower definition may not protect you the way you think.
Getting the Figure Right
- Start with your outgoings, not your salary. List what needs covering each month before you look at percentages.
- Check what you’d fall back on first. That means sick pay if you’re employed, or savings if you’re self-employed.
- Match the deferred period to that fallback. Don’t choose the cheapest by default.
- Check the policy terms, not just the amount. Look at how long it pays and what’s excluded.
- Review it when things change. A pay rise, a new mortgage or going self-employed can all shift what you need.
Frequently Asked Questions
Can I insure my full salary? Usually not. Most insurers cap cover at around 50% to 70% of your eligible gross earnings, partly because personally funded payouts are normally tax-free, and partly to avoid insuring more than you’d actually need.
Does income protection cover redundancy? No. A standard policy covers illness or injury that stops you working, not job loss. Separate accident, sickness and unemployment policies can include redundancy cover if you need it.
Is a shorter deferred period always better? Not necessarily. It usually costs more, so it’s only worth it if you don’t have enough savings or sick pay to bridge a longer gap.
Finding Your Right Level of Cover
The maximum an insurer will offer and the right amount for you aren’t always the same thing. Not sure how much cover you need? Our protection advisers will work out the right amount based on your income, outgoings, and any existing cover, with no upfront fee. Book a free initial conversation with AS Financial.
