Why Permanent Health Insurance?
Permanent Health Insurance (PHI) is the industry name for Income Protection.
The policy provides you with a monthly income if you cannot work due to accident or sickness.
Designed to cover your core monthly financial commitments such as your mortgage/rent, bills and food.
Income Protection is the one protection policy every working adult should consider. Which? Money 2013
Speak to our expert independent advisers or get an instant online quote to compare the UK’s leading insurers.
What does PHI cover?
Accident & Sickness
When the ‘Own Occupation’ definition of incapacity is used the policy can payout for any medical condition that prevents you from working in your own specific job role.
For protection against permanent illnesses or injuries (such as Multiple Sclerosis or Paralysis) it is important to select the long-term policy option where the payout length would not be limited.
As permanent health insurance policies do not use a set list of conditions they cover and many insurers do not have any standard exclusions, this policy is the most comprehensive form of incapacity insurance available.
How does Permanent Health Insurance work?
You cease working due to any accident or sickness which prevents you from doing your job role.
You make a claim with the insurer (You will need a letter from your doctor and may need to complete a claims form).
The insurer will start to pay a monthly tax free benefit after you have been unable to work for the length of your deferred period.
The policy pays out until either you return to work or reach the maximum payout length, which could range from one year to retirement.
Do I need Permanent Health Insurance?
When deciding if permanent health protection is worthwhile it makes sense to weigh up the risk of something happening and the potential consequences:
The Incapacity Risk:
1 in 10 people have been unable to work due to illness or injury for +6 months (The Guardian/Unum Survey, 2011).
With government incapacity benefit of only £99.15 per week, someone with a salary of £30,000 would suffer a 77% fall in income.
If you lost your income how would you continue to pay your bills if you didn’t have income protection?
Your Key Options
Choose your level of cover
Depending on the insurer, it is possible to cover anywhere from 50% to 70% of your gross (pre-tax) income.
Choose your deferred period
This is the length of time you would need to be off work before the policy kicks-in and starts paying out. Deferred periods range from 7 days to 12 months.
Choose your payout length
Short-term plans can payout for a maximum of 12 or 24 months and long-term plans will pay a claim for the remainder of your policy term should you be unable to return to work.
They were patient thorrgh and good value for money. I regret not using them before and I will use them again in the future.Edward Brampton
What is permanent health insurance?
Permanent Health Insurance (PHI) is the technical name for Income Protection. PHI covers your a monthly income if you are unable to work due to illness, injury or disability. Should you need to make a claim the policy would continue to pay a claim either until you are well enough to return to work or you reach the end of the policy term.
How does it work?
If you are unable to work as a result of accident or sickness, Permanent Health Insurance policies pay out a monthly benefit to replace a proportion of your lost earnings.
Providing long-term protection
The plan 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 are fit for work or your reach the termination age of the policy, which is usually set at your planned retirement age.
Important options to consider
This section sets out the various options you have when setting up your PHI policy. Some choices you make can have a large impact on the premiums quoted so it is really worth reading this section before comparing insurers.
Level of cover
It really makes sense to review your expenditure to see how much you need to cover. It is obviously important to ensure you have all the essential outgoings covered, such as your rent/mortgage payments, utility bills, groceries and any debt repayments.
Please note that insurers have different limits as to how much you can cover as a proportion of your income, which ranges from 50% of gross (taxable) income with most insurers, right up to 65% of salary with a small number of other insurers.
If you decide to cover more than 55% of earnings you’ll exclude a large number of insurers from providing quotes and potentially end up with uncompetitive premiums for a small additional amount of extra cover.
The deferred period is the length of time you would need to be out of work due to illness or injury before the policy would kick-in and start paying out a monthly benefit. Insurers usually offer deferred periods of 4 weeks, 8 weeks, 13 weeks, 26 weeks and 52 weeks, however a very limited number of insurers will even offer a deferred period as short as 7 days.
When setting your deferred period it is important to really think hard about how long you would realistically be able to last without an income before you definitely needed the policy kick-in. Factors to consider are full sick pay entitlement form your employer (if provided), savings and whether you have a partner who works.
It is very common to want to set the deferred period at 4 weeks, especially for the self-employed, it is just important to note that this option makes a huge difference to the premiums. For example, it is generally the case that if you increase the deferred period from 4 weeks to 13 weeks, the monthly premiums can come down by 40% to 50%, depending on the insurer.
Given the length of the policy term it makes sense to consider including the Retail Price Index (RPI) inflation linking option so that the real value of your cover remains unchanged over time.
With this option both the monthly benefit and premiums would rise each year in line with rises in the Retail Price Index (RPI) measure of inflation (as published by the Bank of England).
If this option is selected Drewberry Insurance try to use insurers that would increase both the benefit covered and the premiums charged one-for-one with inflation. It is important to note that some insurers would price the additional amount of cover based on your age at the time, meaning that the premiums would rise faster than your benefit.
Permanent health insurance or income protection?
There is sometimes confusion as to the difference between PHI and Income Protection Insurance (IP), which this section should clear up.
Change of Name
Permanent health insurance is now officially called income protection insurance, so the only difference between the two policies is in the name.
However, care needs to be taken when researching this type of cover because payment protection plans are often marketed in the income protection bracket (often called income payment protection), and these two policies are very different.
Not Payment Protection
Payment protection plans can usually only payout for up to 12 months and are therefore far less comprehensive than a permanent health policy as more serious, longer lasting, medical conditions wouldn’t be covered fully.
Payment protection policies usually only provide cover in a suited occupation rather than using the ‘own occupation’ definition of incapacity, which means that the plan wouldn’t actually cover you in your own specific job role, but rather a general role given your skills, experience and education.
Are the self-employed eligible for PHI?
Yes, permanent health insurance is available for both the self-employed and for directors of limited companies (please follow the links for more specific information).
For the self-employed it is important to note that cover needs to be based upon profit before tax (which is classed by insurers as your gross (taxable) earnings) rather than the revenue generated by yourself.
For directors of companies the insurer will consider your salary and dividends (provided that dividends are paid out for profits).
Need some advice
When arranging permanent health cover it is usually best to run through with an independent adviser, such as Drewberry. Not only will an adviser be able to ensure cover is set-up correctly but will also know all the nuances in insurer pricing to ensure you get the best rates for your protection.
Fill in your details and complete a quote online to receive options from a panel of leading UK insurers. Alternatively, if you would like to talk through your options with one of our expert and impartial advisors then please feel free to contact us on 0208 432 7333.
Actual Income Protection Claims
The table below details real life stories of how an income protection policy has saved someone financially following an illness which left them unable to work.
The information is from Liverpool Victoria's 2011 claims, it demonstrates how anyone can lose their income, regardless of age, gender or occupation, LV's youngest claimant in 2011 was just 22 years old.
To provide expert financial advice and deliver a passionate 5-star service to help educate our clients so they can make informed decisions.
To help individuals and businesses throughout the UK to plan their financial future whilst protecting them against the financial risks they may face.
To provide quality financial advice in a transparent, friendly and professional manner.
Occupation Definition Calculator
Make sure your Income Protection covers you in your 'Own Occupation'!
Too often individuals take out income protection without being fully aware of the incapacity definition on which their plan would pay out.
Will the plan pay out if I am unable to do my current job role? Or will it only pay out if I am unable to do any occupation?
If you do not already have income protection this tool should provide you with guidance as to what to look out for and to ensure you do not fall foul of a lesser occupation definition.
Independent Protection Expert at Drewberry Insurance