Difference between income protection and health insurance

4 min Read Published: 23 Jun 2014

Reader Question: What is the difference between income protection and health insurance?

Hi, I was looking for some cover in case I become ill as I am the main bread winner. I've seen a lot of terms banded about such as income protection insurance as well as health insurance. But what is the difference between income protection and health insurance, as I thought they were pretty much the same thing? If you could shed any light that would be great!



My response:

Hi Daniel, you are not the first and certainly won't be the last person with this question. So below I've pulled together a round of what each type of policy does and when someone might need them. I hope it helps.


What is income protection insurance?

  • What is the difference between income protection and health insurance?income protection is designed to provide an income if the the policyholder is unable to work due to sickness, or as a result of an accident
  • benefits will be paid until the policyholder returns to work or retires or reaches the end of the policy term, which ever happens first
  • benefits will only commence once a pre-agreed deferred  period has passed, this is generally between 1 and 12 months, the longer the deferred period the lower the premium
  • income protection insurance is a long term policy with monthly premiums
  • the amount of income covered is often 60-65% of the policyholder's monthly income normally
  • any benefits are received tax free unless cover is provided free by an employer
  • pre-existing conditions are not covered under an income protection  policy

Why do I need income protection insurance?

  • if you only receive your full pay for a limited period of time when off work
  • to make sure your basic living expenses are covered whilst off work
  • if you receive only statutory sick pay when off work

What is health insurance?

  • also known as private medical insurance or PMI
  • pays for medical treatment either in a private hospital or as a private patient in a NHS hospital
  • does not cover normal GP services
  • cover for pre-existing conditions may be restricted or excluded by the terms of the policy
  • premiums are paid monthly and may be supplied  by an employer as an employee benefit
  • premiums may be increased or certain conditions or restrictions applied
  • there may be limits to the amount covered for some treatments and hospital stays
  • in normal circumstance patients are referred by their GP and can then get immediate treatment, avoiding any waiting time
  • does not normally support ongoing check ups following initial treatment

Why do I need health insurance?

  • everyone already gets free treatment under the NHS so health insurance cover is not essential
  • health insurance will allow you to get immediate treatment for any illness
  • you may also get to the latest treatments and drugs which are not available under the NHS due to cost restrictions
  • you can choose the surgeon and hospital where you are treated from the insurer's approved list
  • some critical conditions will have to be treated under the NHS as not all private hospitals can accommodate them