Permanent Health Insurance (PHI) is the technical industry name for Income Protection. It pays you a regular, tax-free monthly benefit if you can’t work due to accident or sickness. The replacement income lets you keep up with your essential outgoings, such as your:
It is the one policy which pays for everything. Helping you keep up with your monthly expenditure when you aren’t able to work.
EXPERT TIP 🧐
According to consumer group Which? Income Protection is the one policy every working adult should consider.
Permanent health insurance is a comprehensive way of protecting your earnings should you be unable to work due to illness or injury.
Don’t confuse PHI and PMI!
Permanent Health Insurance (PHI) provides a replacement income if you are unable to work due to medical reasons. Private Medical Insurance (PMI), on the other hand, pays for medical care in a private hospital.
Independent Protection Expert
During an application, insurers ask a series of medical questions about your health. If you disclose a medical condition, your insurer may:
If you have existing health conditions you are best speaking with an expert adviser. We use our direct access to the underwriters at every UK insurer to find you the most competitive terms.
Please don’t hesitate to pop us a call on 02084327333 or email firstname.lastname@example.org.
Yes, PHI has a few blanket exclusions that apply to everyone. Most policies won’t pay out for illnesses or injuries sustained:
Other than this, there are few standard exclusions. Instead, insurers base coverage on your pre-existing medical history.
Income Protection is not mandatory and may not be needed if you have:
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.
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.
If you couldn’t work, how would you replace lost earnings? And are those replacements a viable option, especially over the long term?
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.
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.
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.
The cost of PHI cover depends on a range of factors, including your:
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:
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.
25 Years Old
35 Years Old
45 Years Old
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.
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.
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 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.
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.
The type of premiums you choose impact the cost of cover over the policy’s life. You have two options:
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.
IMPORTANT NOTICE 🧐
Beware reviewable premiums. Some lesser policies (for example Payment Protection Insurance or PPI) use such premiums. Here, the insurer is entitled to increase your premiums as it sees fit for any reason. It’s therefore hard to know what you’ll pay from one year to the next.
If you take out PHI and become ill or injured, these steps offer a basic outline of how to claim:
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.
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.
Legal & General
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.
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.
If you opt for long-term PHI — which pays out for as long as you need it, right up until you retire — then yes, it covers permanent disability.
However, if you choose a short-term plan, it will only pay out for a maximum of 1, 2 or 5 years per claim.
While the policy itself also lasts until retirement, so you’re entitled to a payout for as many periods of 1, 2 or 5 years as you need providing it’s for different conditions each time, it won’t pay out long-term if you were so incapacitated you could never work again.
Our understanding is no, HMRC does not consider any income replacement insurance as a P11D / benefit in kind.
P11D benefits are those which employers offer and you must pay tax on as a result. The majority of our clients pay for PHI as individuals, from their personal bank accounts, and so there’s no employer / employee relationship to worry about.
Also, when you pay for it personally, the insurer pays claims tax-free. This is because you’ve already paid income tax and National Insurance contributions on the money used to pay premiums.
However, if you’re enrolled in a workplace Group Income Protection scheme paid for by your employer, or you opt for Executive Income Protection, the answer is slightly different.
While it’s still not usually a P11D / benefit in kind for employees, so you won’t have to pay any additional tax as a result of having cover, you do have to pay tax on the benefit.
When the insurer pays out, it firstly pays the benefit into the company. It’s the company’s job to distribute it from there as it would normally remunerate its employees, such as via PAYE. It’s at this point HMRC deducts the appropriate taxes from the benefit.
There are a few key differences between Critical Illness Cover and Permanent Health Insurance. It’s worth highlighting them so you’ve got the full picture before taking out either policy.
Firstly, PHI pays out a regular monthly income if you can’t work through illness or injury. Long-term policies pay out as many times as you need to for as long as you need to over the life of the policy.
Critical Illness Cover, on the other hand, pays out a single lump sum on diagnosis of a critical illness. Once you claim, the policy ends and you won’t get another payout, even if you develop another critical illness later on.
Moreover, Critical Illness Cover only pays out on diagnosis of a set list of critical illnesses in the policy’s terms. The most common conditions insurers pay out for are cancer, heart attacks and strokes.
With Critical Illness Cover, you must have one of the illnesses in the policy terms, at the stipulated severity, to claim. Compare this to PHI, where any illness / injury that stops you working triggers the insurer to pay the benefit.
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.
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.
For help and fee-free advice, don’t hesitate to give us a call on 02084327333 or email email@example.com.