How Does Permanent Health Insurance Work?
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:
- How much you want to insure
The amount of monthly income you’ll receive from the policy if you can’t work. While it may be tempting to simply go for the maximum you can insure, this could restrict the number of insurers you can get quotes from and push up the price of cover, so consider only covering essential expenditure.
- Deferral period
How long you can wait before the policy kicks in and starts paying out an income. The longer the deferral period the lower the cost of cover, so consider how long you could last on employer sick pay or savings and set your deferral period accordingly to bring down the price of Permanent Health Insurance.
- Cease age
The age you’ll be when the policy ends. Some insurers will run a policy up until the age of 70, but this will notably increase the cost compared to a policy that ends at 65 or even 60, so work out your expected retirement age and consider setting the end of your PHI cover in line with this.
Choosing the Right Premiums
When it comes to the type of premiums you’ll pay there are three options:
- Reviewable premiums
An insurer withholds the right to ‘review’ these premiums as they see fit. This means they could rise for a number of reasons, from poor underlying economic performance data to a spike in claims the insurer experiences in a given year. It can make it hard to know what you’ll be paying for the policy year-on-year.
- Age-banded premiums
Generally, these premiums start off cheaper but then increase with time to take into account your age and the growing risk of a claim as you get older. Unlike reviewable premiums, however, these can only increase in line with a special annual rate laid out in your policy documents.
- Guaranteed premiums
Guaranteed for the life of the policy. These usually work out a little more expensive initially but are then fixed throughout the policy’s term. For a long-term Permanent Health Insurance policy that you intend to hold for many years, it generally works out cheaper over the life of the policy to consider guaranteed premiums, especially if you take the cover out when you’re young and healthy, as premiums can’t rise over time.
Your Definition of Incapacity
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
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.
Any Occupation / Work Tasks
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.
What’s the Difference Between Permanent Health Insurance and Critical Illness Cover?
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.
Don’t Confuse PHI and PMI!
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.
Claiming on Permanent Health Insurance
Should you become ill or injured and need to make a claim on your PHI policy, use the following steps to make a claim:
- Step 1 :: An injury or illness prevents you form working and you are forced to take time off to recover.
- Step 2 :: As soon as you stop working, contact your insurer’s claims team. To successfully make a claim, you’ll typically need a completed claims form, written evidence of your medical condition, your policy number and potentially evidence of your salary prior to your health problem.
- Step 3 :: If your claim is approved, you will be required to wait out your policy’s deferred period before your insurer will begin paying out monthly benefits to replace your lost income.
- Step 4 :: Once your insurer has begun paying out your benefits, you will be able to claim until you recover or until you reach your policy’s cease age if you can never work again.
Neil’s Cancer Claim With British Friendly
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.
🤕 Read More About Neil’s Claim