Income Protection
Also known as Permanent Health Insurance (PHI), this type of insurance is designed to pay you a regular tax free income if you are unable to work through long term illness or injury and will continue to pay out until you can return to some kind of paid work, reach retirement or died, whichever is sooner.
It has a waiting period before it will start to pay out. The longer you agree you'll wait, the lower your premiums will be, so it is important you find out what income you can get from your employer, and other insurance (such as mortgage payment protection insurance) in the event of illness or disability.
This cover might not be available to you if you have existing health problems or a dangerous job.
Some employers may pay you your normal income for a certain period of time, for example they may pay you 6 months full pay, followed by 6 months half pay which is great, but what happens after that and what if your employer offers no provision at all or you are self employed?
By law, an employer must pay most employees statutory sick pay for up to 28 weeks, though this will probably be a lot less than your full earnings. After that, you would probably have to rely on state benefits.
Permanent Health Insurance aims to put you back to the position you were in before you suffered a loss. But it does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost less an adjustment for State benefits you can claim. This usually translates into a maximum of, say 50% to 65% of your before-tax earnings.
Cost
You pay a monthly premium throughout the term of the policy. Cost depends mainly on:
- Your Age – At the time you start the policy. Older people are more likely to suffer an illness, so pay more.
- Your Sex – Gender can have an affect on the premium you pay.
- Your Health – At the time you start the policy. If you have existing health problems you might be refused cover or have to pay more.
- Your Job – Some jobs are more likely than others to contribute towards illness. For example, a bank clerk is deemed to have a very safe job but a deep sea diver runs high risks and so would have to pay more.
- Hobbies And Lifestyle – For example, smoking makes you more likely to become ill, so you'll pay more.
- Waiting Period – Once you claim, there is a delay before payments start. You can choose how long this is, for example from 4 weeks up to 104 weeks. The longer the waiting period, the less you pay.
Access
- If your health is poor or your lifestyle is considered risky, you may be refused cover or have to pay more than normal.
