Income and payment protection

Find out about income and payment protection, and how to check if one of these products is right for you.

Income and payment protection insurance products are designed to help protect you, for example, by helping to cover your credit repayments, in the event of an accident, illness or unemployment. 

There are a range of income and payment protection products available that offer different types of cover, so you should shop around to make sure the product is right for you. 

We are aware that some firms have developed new products that aim to provide similar kinds of cover to payment protection insurance (PPI), which was widely mis-sold. While these new products may be useful for some people they can come with similar risks to PPI. 

We have told firms developing and selling new income and payment protection products to think carefully about how they meet the needs of customers.

However, there are steps you can take to protect yourself from being mis-sold or buying a product that is not right for you.

What to consider before choosing a product

You may be offered an income or payment protection product if you are taking out a loan, mortgage, credit card, store card, car finance or other credit. 

There are different types of income and payment protection insurance products and they can be taken out alongside a credit product or as a standalone policy. 

The different types of protection often offer different levels of cover.

If you are thinking about taking out an income or payment protection product, you should carefully consider whether it is right for you. 

Remember, while you may be offered one form of protection you should shop around, as another product might be better for your circumstances.  

For example, a lender may offer you a debt waiver that could be useful to cover loan repayments, but it might be better for you to have a short-term income protection product (STIP), so you could choose how to use the money you are paid. 

Types of income protection products

Debt waivers

If a debt waiver is included in the terms of your loan or other credit product, the lender will agree not to take repayments from you for a set period of time if, for example, you have an accident, fall ill or become unemployed. 

A debt waiver is considered part of the loan or credit product, and is sold at the same time.  

You should check how you will pay for a debt waiver and the overall cost. Having a debt waiver might mean making higher interest payments on your loan or credit product. 

This protection is sometimes called debt cancellation. However, you should look carefully at the terms of the cover as it may only waive interest repayments, not the entire loan. 

Payment protection insurance (PPI)

While PPI was found to have been widely mis-sold, it can be useful in the right circumstances. 

PPI may cover your loan, mortgage, credit card, or other credit repayments, if you are unable to meet them in certain situations. These circumstances usually include being made redundant or not being able to work because of an accident or illness. 

PPI can no longer be sold at the same time as a loan or credit, although the firm can provide a quote for the cover. The firm must then wait at least 7 days before it can complete the PPI sale, unless you contact the firm yourself to buy it sooner. Find out more about PPI.

Short-term income protection (STIP)

If you are unable to work due to an accident, sickness or involuntary unemployment, STIP can provide regular, pre-agreed and tax-free money for a set period of time, usually for a maximum of 12 or 24 months.

It might also be known as accident, sickness and unemployment insurance. 

The amount paid out under a STIP policy is an agreed percentage of your monthly income, up to a maximum amount (normally between £1,500 and £2,500 a month). 

If you have to claim on your STIP policy, the insurer will pay the money directly to you and you can decide how to use it. This might be to cover outgoings like loan or mortgage repayments, utility costs and food bills. 

STIP does not need to be bought with a specific loan and you decide how much you want the policy to pay you, and therefore how much it will cost. ​​​​​​

STIP cannot be sold at the same time as a loan and a firm must wait at least 7 days from agreeing the loan before it can complete the STIP sale.  

However, you can contact the firm yourself within this period to buy STIP sooner. 

Long-term income protection (LTIP) 

LTIP works in much the same way as STIP, but is designed to cover an agreed percentage of your monthly income right up until retirement age should you be unable to work due to an accident or sickness.  

LTIP used to be known as permanent health insurance. 

Policies usually begin to pay out after your employer stops sick pay, and will continue to do so until you can get back to work or until the end of the policy term, whichever is sooner.