Permanent Health Insurance

Why Is Permanent Health Insurance Important?

Income Protection is not mandatory and may not be needed if you have:

• plenty of savings
• a generous employer who provides long-term employer sick pay
• a partner whose income you can rely on.

However, for many of us that simply isn’t the case. So, rather than thinking about whether it is worth it, it may make more sense to consider what would happen without it.

What’s the Risk of Falling Ill?

The risk of being out of work through accident or sickness is higher than many people think.

For instance, 14.7% of the over-55s had been out of work for at least 6 months at some point during their careers according to a Drewberry Protection Survey.

Ultimately, if you fell ill without any form of income protection, would you struggle financially?.

That was certainly the case for financial blogger and author Mrs Mummypenny. Here’s why she took out Income Protection.

Could I Use Other Safety Nets?

If you couldn’t work, how would you replace lost earnings? And are those replacements a viable option, especially over the long term?

Could I Use My Savings?

2 in 5 people in Drewberry’s Wealth & Protection Survey told us they had £1,000 or less in savings. This simply isn’t enough if you’re off work for an extended period.

With average household expenditure being almost £600 per week, many Brits have barely a fortnight’s outgoings tucked away for a rainy day.

Is Employer Sick Pay Enough?

What about your employer, would they cover your wages if you couldn’t work?

Firstly, check whether your employer offers full sick pay or the legal minimum. This legal minimum is Statutory Sick Pay and stands at just £95.85 per week.

Secondly, not everyone is employed. The UK has a growing army of sole traders, contractors and directors operating through limited companies. If you’re self employed, or your limited company employs you, then there’s no one to offer sick pay.

For this reason, the self-employed, directors and contractors tend to face higher levels of financial hardship if they can’t do their job.

What About State Benefits?

Some people think state incapacity benefits are enough of a safety net. However, the reality is that government benefits aren’t particularly generous. For example, one of the main sickness benefits is Employment and Support Allowance. This starts at £74.35 per week for the over-25s depending on the nature of your illness.

Is this a realistic figure to live on?

Although employment and support allowance and other state benefits are available depending on your disability, these rarely add up to what you’d receive from work.

How Much Does A Permanent Health Insurance Policy Cost?

The cost of PHI cover depends on a range of factors, including your:

• Age
  The older we get, the greater the risk of developing illnesses / injuries. As a result, the older you are the more Permanent Health Insurance costs.
• Health / medical history
  Insurers may increase premiums if you have a pre-existing condition or simply exclude that condition outright.
• Smoker status
  Smokers are more likely to fall ill, and with more serious conditions, than non-smokers. Most, although not all, insurers therefore charge smokers more for cover.
• Occupation
  Some jobs are riskier than others and you pay more for coverage as a result. For example, manual workers face a higher risk of workplace injury than office workers. Moreover, you’re more likely to be unable to do a manual job following an illness / injury due to the physical nature of the job.

Average Monthly Income Protection Premiums In 2022

In the below table, we’ve laid out the average monthly cost of Permanent Health Cover. To calculate the premiums, we’ve assumed each individual is:

• In good health
• An office worker (an accountant)
• Looking for a benefit of £1,500 a month
• Seeking an 8 week deferral period
• Going to match their cease age with their retirement at age 65
• Looking for long-term cover
• Going to guarantee their premiums for the life of the policy.

These Permanent Health Insurance quotes are from our instant online quote engine. They represent the cheapest policy that matches the above criteria from across the entire UK market.

Policy Factors Impacting Premiums

As well as personal factors, there are some choices you have to make about your policy when you take out insurance. These also impact the price of cover.

Monthly Benefit / Level of Cover

Also known as the ‘sum assured’, this is how much your insurer pays you each month if you claim. The higher the benefit, the higher your premiums.

Payout Period

The length of time your policy pays out for depends on the type of cover you choose.

Short-term protection means your insurer only pays out for 1, 2 or 5 years per claim. Although short-term policies last until you retire the insurer stops paying out after a set period for any one claim. The claim will cease even if you still remain too ill to work.

On the other hand, long-term protection pays out right up until you retire. It’s a more comprehensive option as it provides continued income if you’re so ill you can’t work again.

For this reason, we tend to recommend long-term cover over short-term options. However, it all comes down to cost. If you’re on a budget, a short-term policy is better than no cover at all.

Your Deferral Period

Your deferral period determines the length of time before the policy pays out. For example, a policy with an 8 week deferral period starts paying out after 8 weeks off sick.

You choose this at the outset. Longer deferral periods mean cheaper premiums. The shortest deferral periods are 1 week, while the longest are 12 months.

Work out how long you could realistically survive on employer sick pay or savings etc. and have your PHI benefit kick in after that period.

Policy Cease Age

Your cease age is how old you’ll be when the policy ends. With long-term cover, it’s also the age your policy stops paying out if you ever become so ill or injured you can’t work again.

You usually align your cease age with your retirement age. That way, the policy ends as you get access to other income, such as pensions.

The older your cease age, the higher your premiums.

Type of Premiums

The type of premiums you choose impact the cost of cover over the policy’s life. You have two options:

• Age-banded premiums
  These premiums rise each year at a fixed rate laid out in your policy documents. The increase is solely linked to your age and the growing risk of you claiming as you get older.
• Guaranteed premiums
  Fixed for the life of the policy (unless alter your coverage). As they’re fixed they may work out cheaper over time. For example, you can fix premiums when you’re young and healthy and they won’t rise from this level for the life of the plan.

However, guaranteed premiums aren’t suitable for everyone. For instance, manual workers tend to get better rates if they choose age-banded premiums, even though they do rise with age. Don’t discount anything until you’ve examined all your options.

How Do I Make a Claim?

If you take out PHI and become ill or injured, these steps offer a basic outline of how to claim:

• An illness / injury stops you working and you take time off to recover.
• Contact your insurer’s claims team as soon as you stop working.
• Complete a claims form — most insurers let you do this online. You’ll also need to offer evidence of your medical condition, for example a doctor’s note, and potentially evidence of your salary prior to your health problem.
• If your claim is approved, wait out your policy’s deferred period. Once this has passed, your insurer starts paying out monthly benefits to replace your lost income.
• You can claim until you recover, your payment period is up (for short-term cover) or until you reach your policy’s cease age if you can never go back to your job.

Neil’s Cancer Claim With British Friendly

Neil is a Drewberry client who bought a British Friendly Income Protection policy. He had the cover for 4 years before he needed the policy.

It started with a bout of stomach pains. After visiting his GP and having some tests, consultants diagnosed Neil with stage 2 bowel cancer. He was unable to work while he had surgery and recovered, so made a successful claim with British Friendly.

Here’s the difference Permanent Health Insurance made to his life.

🤕 Read More About Neil’s Experience

Which Insurers Pay the Most Claims?

Most people understandably want to choose the insurer that’s most likely to pay out when they need it.

However, it’s actually fairly hard to distinguish one provider from another in this area. Payout rates across the industry are not only higher than many people assume but are also fairly uniform.

For example, as shown in the table below, most insurers pay more than 90% of all Permanent Health Insurance claims they receive.

Payout statistics alone should not be used to decide which insurer offers the best Income Protection.

Instead, payout rates should be used as a rough guide to compare successful claims across the industry as a whole.

Beware Payment Protection Insurance (PPI) ⚠️

Be wary of Payment Protection Insurance (PPI). Some insurers and comparison websites label PPI as Income Protection even though it’s generally an inferior product.

Firstly, Payment Protection only pays out short-term. This means it stops paying out after a set period, even if you’re so ill you can never work again.

Secondly, insurers don’t medically underwrite PPI. You don’t therefore know what your policy covers you for until you need to claim.

Lastly, PPI often includes blanket exclusions on conditions such as back pain and mental health concerns. These represent some of the most common claims on Sickness Insurance.

For more information on the key differences see our Income Protection vs Payment Protection Guide.

Compare Permanent Health Insurance Quotes & Get Expert Advice

When arranging a PHI policy, it’s usually best to run through the ins and outs with an expert adviser.

We are here to ensure you set up cover correctly, all on a totally fee-free basis. We compare all the top UK insurers to get you the best possible rates.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• There is no fee for our service
• We are an award winning 🏆 independent insurance broker who works with all the leading UK insurers
• You’ll speak to a dedicated expert from start to finish
• We are very proud of the 3311 and growing independent client reviews rating us at 4.92 / 5
• Claims support when you need it most.
• We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐

For help and fee-free advice, don’t hesitate to give us a call on 02084327333 or email help@drewberry.co.uk.