Income Protection if You’re Dismissed While Sick

10-second summary: Income protection is designed to keep paying if illness or injury stops you working. In most cases, payments can continue even if your employer lets you go while you’re out sick. The detail that matters is how the policy is written, not just whether you’re “accepted”.

This question comes up fairly often, usually from people who are doing their homework before taking out income protection.

It tends to go something like this.

Hi Nick. I’m reading about income protection and I’m wondering what happens if someone is let go by their employer while they’re out sick.
Does the policy still pay, or does everything stop once the job ends?

It’s a reasonable thing to ask.

Income protection is meant to replace your income if illness or injury stops you working. But people worry that it only works if their employer keeps them on the books.

So let’s deal with that concern properly.

Can You Be Dismissed While on Long-Term Sick Leave?

Yes.

In Ireland, it is legally possible for an employer to dismiss an employee who is on long-term sick leave.

That does not mean they can do it casually or without risk.

An employer must show that they followed a fair process and that the employee is genuinely incapable of carrying out the role they were hired to do. Medical evidence usually plays a central role.

The Unfair Dismissals Acts do not prevent dismissal. They give the employee the right to challenge it.

In practice, this means dismissals during sick leave tend to happen only in limited situations, such as where:

• Medical opinion confirms the employee is unlikely to return to the role
• No suitable alternative role exists
• A fair process has been followed and documented

It is not lawful for an employer to treat extended sick leave as a resignation or simply decide they have had enough.

If That Happens, What About Income Protection?

This is the key point.

For most modern income protection policies, dismissal during a valid claim does not automatically stop payments.

If you were medically unable to work, claimed correctly, and were accepted onto claim, the insurer assesses you based on your health and ability to work, not your employment status.

In plain English, if you are still unfit for work, payments usually continue.

That said, not all policies are identical.

Some older or more restrictive policies include wording that allows payments to stop if employment ends or if the employer ceases to trade while you are on claim.

This is why insurer choice and policy wording matter far more than most people realise.

What Income Protection Does Not Cover

This page is not about redundancy, layoffs, or losing your job while healthy.

Income protection is inability to work insurance. It pays when illness or injury stops you working.

If you are dismissed while healthy, income protection will not payout.

That risk sits outside what the policy is designed to cover.

This distinction matters, because confusion around this point leads people to expect protection that was never part of the contract.

Why This Still Matters When Choosing a Policy

Two people can both have income protection and still end up with very different outcomes.

The difference is often hidden in policy wording, definitions of incapacity, and how the insurer treats employment changes during a claim.

This is one of the reasons we are careful about which insurers we recommend and why we do not treat all income protection policies as interchangeable.

It’s easy to get a policy.

It’s much harder to get the right one.

So Should This Be a Dealbreaker?

No.

The possibility of dismissal during long-term illness does not undermine income protection as a concept.

If anything, it highlights why proper cover matters.

Without it, your income usually stops completely once your sick pay runs out, regardless of what your employer does.

Income protection is about keeping money coming in when your health lets you down.

It is not a guarantee of employment and it is not redundancy insurance.

What to Do If You’re Unsure

If you already have income protection and are not sure how your policy would treat a situation like this, it is worth checking the wording before you ever need to rely on it.

If you are arranging cover now, this is one of the questions that should be answered at the start, not after a claim begins.