Why there is a ceiling
Income protection exists to replace lost earnings, so insurers keep the benefit below your full income. If a policy paid more than you earn, it could discourage a return to work. Each insurer sets a maximum based on a proportion of your gross earnings, often with a stepped scale so higher earners can insure a smaller share of their top slice.
Many insurers also apply an overall monthly cap, which matters mainly for high earners.
How insurers measure your income
For employed people, it is usually your basic salary, and sometimes regular overtime, bonus or commission. Self-employed people normally use taxable profit from recent tax returns, often averaged over a few years. Company directors may be able to include salary and dividends, depending on the insurer.
At claim time, the insurer checks your earnings again. If your income has fallen since you bought the policy, the payout may be reduced to fit the limit. Some policies agree your benefit at the start so this check does not apply. Ask whether yours does.
- Employees: salary, plus some regular extras
- Sole traders: taxable profit from tax returns
- Directors: salary and sometimes dividends
- Contractors: day rate or company earnings, by insurer
Working out what you really need
The maximum is a ceiling, not a target. Start with your monthly essentials: mortgage or rent, utilities, food, travel, childcare and debt repayments. Then add anything you would want to keep paying, such as pension contributions. That figure is a sensible starting point.
Covering less than the maximum lowers your premium. If a partner earns too, think about what the household would need if your income stopped.
Other income that can affect a claim
Insurers usually look at other income you receive while off work, such as continuing sick pay from an employer or another income protection policy. Some reduce the benefit if your total income would go over the limit. Rules on state benefits vary between policies, so check the terms.
Payouts from a personal policy you pay for yourself are free of income tax, which is one reason the percentage limits can look lower than your take-home pay.
How Hi Tomorrow sets your benefit
We look at your earnings, how you are paid and your monthly costs, then suggest a benefit that protects your essentials without paying for cover you could not claim. For self-employed clients and directors, we find insurers whose income rules suit how you draw money.
We compare policies across our panel and explain any claim-time earnings checks. Acceptance and terms are subject to the insurer's underwriting.