Income Protection

Only 4% of the UK working population have income protection*

If you get sick or have an accident that prevents you from earning an income for an extended period, unless you have investment income or a wealthy benefactor, your standard of living is likely to drop. To begin with you may get statutory sick pay from your employer; and you may subsequently be able to claim incapacity benefit, but there are strict tests for eligibility. Even if you do qualify for incapacity benefit, the payments are taxable and the maximum currently payable is less than £77 per week. (See www.direct.gov.uk for factsheets on statutory sick pay and incapacity benefit.)

Permanent health insurance, also known as income protection insurance, is designed for this kind of scenario; it pays out a regular income if you are unable to work because of long-term sickness or disability.

The policy is ‘permanent’ because it remains in force until it expires at the age you selected at the outset (usually retirement age) or you die beforehand – no matter how many times you make a claim.

Payouts
PHI payouts used to be capped at 75% of income as an incentive to return to work, but they are now tax-free in the initial period, and are therefore increasingly limited to a maximum 60-65% of gross salary plus any state benefit you receive. Payouts will continue until you die, return to work or start drawing a pension (or you can specify a limited payout period).

Premiums
Premiums are fixed according to the type of job you do: desk-bound jobs are deemed to carry the lowest risk, and heavy manual labour is considered the highest risk. Other factors influencing the premium you pay include gender (women are deemed more likely to get sick in their working life than men, and therefore insurance costs more), whether or not you smoke, and your medical history. You can reduce your premium by choosing a longer deferment period before payments kick in (typically there is a choice between waiting four, 13, 26 or 52 weeks) or limiting the payout period for each claim.

Best Life Policy can help you by fully researching the market to find the best policy for you.

* source: Mortgage Finance Gazette 17th May 2011