Permanent Health Insurance (PHI) is the technical industry name for Income Protection. It’s designed to pay you a regular monthly income if you can’t work due to accident or sickness.
It allows you to keep up with all your essential expenditure, from mortgage / rent to utilities and groceries if you’re ever medically unable to work.
According to consumer group Which?, Income Protection is the one policy every working adult should consider.
PHI is designed to protect against illnesses, injuries, accidents and sickness.
Essentially, if you develop a medical issue that prevents you from working for longer than your deferred period, you’ll be able to make claim on your policy .
Permanent Health Cover doesn’t typically have any standard exclusions, with what you are and aren’t covered for being determined by your pre-existing medical history.
If you’ve suffered from a medical condition in the 5 years prior to taking out the policy your insurer is likely to look at your medical disclosure and choose to do one of three things:
With some insurers it may be possible to serve a set period on the policy without receiving any advice, medication or treatment for a pre-existing condition and have it reassessed and potentially covered. This will be entirely at the insurer’s discretion.
When it comes to existing health conditions it is worth consulting with an expert adviser to ensure you get the most competitive terms.
We have direct access to the underwriters at the top UK insurers which puts us in a great position to help, please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk
Rather than thinking about whether or not PHI is worth it, it may make more sense to consider what would happen if you fell ill without it.
Could you rely on savings to tide you over if you were out of work?
Many of us – 2 in 5 respondents to Drewberry’s Wealth & Protection Survey said they had no more than £1,000 in savings – don’t have enough saved up to last for an extended period, especially given that average household expenditure is upwards of £500 per week.
If you can’t rely on savings, you may have some form of company sick pay. However, it’s important to distinguish between whether this is full sick pay (i.e. you’d receive from your employer exactly what you’d have been earning if you’re off work) or simply Statutory Sick Pay at £95.85 per week.
Government benefits aren’t particularly generous for those too ill to work, either. One of the main sickness benefits is Employment and Support Allowance at £74.35 per week – is this a realistic figure to live on?
Although other state benefits are available depending on the nature of your disability, these rarely add up to what you would have been receiving from work.
The risk of being out of work through accident or sickness is higher than many people would think. Meanwhile, the risk of long-term illness or injury is much also higher than people assume.
14.7% of the over-55s had been out of work for at least 6 months at some point during their careers, according to Drewberry’s 2018 Protection Survey.
If you are unable to work as a result of accident or sickness, Permanent Health Cover pays out a monthly benefit of between 50% and 70% of your gross (pre-tax) earnings.
The PHI insurance would start to pay out after your chosen deferred period (sometimes known as a waiting period) and would continue to do so either until you’re fit for work or you reach the termination age of the policy, which is usually set at your retirement age.
There are three factors to consider when taking out Permanent Health Insurance that will significantly affect the scope as well as the cost of cover:
When it comes to the type of premiums you’ll pay there are three options:
The definition of incapacity will have an impact on your ability to make a claim. Essentially, it outlines how ill or injured you need to be in terms of your ability to perform your duties at your job before being able to make a successful claim.
There are three main definitions of incapacity to choose from when setting up your PHI:
Own occupation cover means that you will be entitled to make a claim providing your injury or illness prevents you from working in your specific job role.
For example, an architect who injures their hand wouldn’t be able to complete technical drawings and so could make a claim.
The suited occupation definition of incapacity means that in order to make a successful claim, you have to be unable to undertake your current job role or any other job where you may have experience or education to perform.
So where an architect with a hand injury may not be able to do their own job, they may not necessarily be able to claim under this definition because have the skills and experience to do another job role they’re suited to.
This definition of incapacity means you can only claim if you’re so totally unfit to work that you can’t do any occupation / perform a set number of tasks required at most basic jobs, such as signing your name or typing.
This definition of incapacity is the most difficult to claim on and in general we’d recommend it is best avoided.
Each year, the insurer will write to you to inform you of the change to the retail prices index and to say that, if you agree, your benefit will rise by that amount so that it doesn’t get eaten away by inflation. To compensate for the higher benefit, your premiums will also rise by a similar percentage.
They may sound similar, but there’s quite a few key differences between Critical Illness Cover and Permanent Health Insurance that are worth highlighting so you’ve got the full picture before taking out either policy.
The biggest difference is that PHI pays out a regular, monthly income if you can’t work through illness or injury. On a long-term policy, you can claim this income as many times as you need to, for as long as you need to during the life of the policy.
Critical Illness Cover, on the other hand, pays out a cash lump sum on diagnosis of one of a specific list of critical illnesses, assuming you meet the severity laid out in the policy terms.
Other key differences between PHI and Critical Illness Cover are laid out in the table below.
Permanent Health Insurance | Critical Illness Cover |
|---|---|
Can cover anything that prevents you medically from doing your job | Covers a list of approximately 40 ‘critical’ conditions (insurer dependent) |
Can pay out as many times as you need to during the life of the policy | Only pays out once, on first diagnosis of a critical illness, and then the policy ceases |
Most common claims include bad backs, mental health problems and fractures | Most common claims are for cancer, heart attacks and strokes |
One letter, big difference! Permanent Health Insurance (PHI) is a policy that pays out for anything that medically prevents you from doing your job, replacing your lost wages while you’re unwell.
Private Medical Insurance (PMI) is an insurance policy designed to pay bills for private medical care in a private hospital.
Should you become ill or injured and need to make a claim on your PHI policy, use the following steps to make a claim:
Neil is a client of Drewberry and took out an Income Protection policy with British Friendly. He was a member for 4 years before he needed to claim.
He started to feel ill and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.
The cost of your PHI insurance will depend on a range of factors. As well as the policy factors outlined above, there are also some personal factors that will impact the cost of cover.
Every policy is priced based on the risk you present to the insurer at the time you take out cover. Essentially, this means the younger and healthier you are, the more likely you are to get a favourable premium.
If you’re a smoker, you’ll pay more than if you were a non-smoker with most providers. This is because of the higher risk of developing a health problem you face as a smoker.
In the below table, we’ve laid out the average monthly cost of Income Protection Insurance.
To work out the cost of cover, we’ve assumed:
The Income Protection quotes were calculated from our instant online quote engine and represent the cheapest PHI policy that matches the above criteria from across the entire UK market.
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Age 25 | £26.77 | £36.09 |
Age 35 | £39.13 | £49.58 |
Age 45 | £56.35 | £84.31 |
Yes, Permanent Health Insurance is the fancy industry terminology for what many people know as Income Protection, Accident & Sickness Insurance, Disability Cover or Sick Pay Insurance. Essentially, they all do the same thing just with different names.
No, Permanent Health Insurance is different from Payment Protection Insurance (PPI) in a number of ways.
Firstly, Payment Protection Insurance is a short-term product, meaning it will only ever pay out for a maximum of 1 or 2 years if you’re out of work through accident or sickness. This may sound like a long time, but wouldn’t be enough if you became so ill / injured you could never work again.
Secondly, PPI is typically linked to a loan, meaning the payout will only ever cover repayments on that loan, mortgage or other line of credit. It won’t typically pay out anything extra to cover daily living expenses, such as utility bills and groceries. So while your mortgage might be temporarily covered by PPI, you may not be able to afford all of the other expenses that come with owning a property, such as council tax, utility bills and other expenses that come from running a home.
Also, PPI isn’t typically medically underwritten at the time of the policy going live. This means that PPI providers don’t take a medical history from you, so you won’t know what you are and aren’t covered for thanks to pre-existing conditions until you come to claim. You could be in for a nasty shock when you come to claim as a result!
In many ways, Permanent Health Insurance tends to be more robust than PPI and hasn’t been subject to the same scandal surrounding mis-selling and low payout rates that Payment Protection Insurance has been through over the past decade.
If you opt for long-term Permanent Health Insurance — cover which will pay out for as long as you need it, right up until your retirement age — then yes, it will cover permanent disability and will pay out for as long as you need it to (until retirement age).
There are alternative short-term Income Protection plans which will only pay out for a maximum of 1, 2 or 5 years per claim. While it also lasts until retirement, so you can claim for as many periods of 1, 2 or 5 years as you like providing it’s for different conditions each time, it won’t pay out in the long-term if you were unfortunately rendered so incapacitated you could never work again.
No matter how you’re enrolled in a Permanent Health Insurance scheme, it doesn’t count as a P11D / benefit in kind.
If you’re paying for the cover personally, i.e. from your own individual bank account, then it does not count as a P11D. Nor do you have to pay any tax on the income you receive from a claim that is being paid. This is because you’ve already paid income tax and National Insurance contributions on the money used to pay premiums.
If, however, you’re enrolled in a workplace Group Income Protection scheme paid for by your employer, the answer is slightly different. While not usually a P11D / benefit in kind for employees in such a situation, meaning they don’t have to pay any additional tax as a result of having cover, there is tax to pay on receipt of the benefit.
When the benefit is paid, it’s first paid into the company and distributed from the business to the employee via the PAYE system. As such, the appropriate taxes are deducted during this process.
| AIGAIG is one of only a handful Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers.
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| AvivaAviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits.
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| British FriendlyBritish Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services.
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| Cirencester FriendlyCirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support.
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| The ExeterThe Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums.
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| Legal & GeneralL&G Accident & Sickness Insurance comes with a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force.
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| Liverpool VictoriaLV Accident & Sickness Cover offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16.
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| Royal LondonRoyal London Accident & Sickness Insurance can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part
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| Shepherds FriendlyShepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option.
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| VitalityVitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards.
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When arranging Permanent Health Cover, it’s usually best to run through the ins and outs with an expert adviser. We are able to ensure your cover is set up correctly and compare all UK insurers to get you the best possible rates.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
Taking out Income Protection Insurance can be confusing and there are a few important pitfalls you should try to avoid.
If you need any help please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.
Tom Conner
Director at Drewberry
Great service assisting me obtain the right product. Would happily recommend Drewberry following their professional and efficient way of working.
Or call us on 0208 432 7333
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