Income Protection Explained

Income Protection: Permanent Health Insurance, Accident Sickness Insurance

Factfile: Sickness Insurance - Income Protection - Permanent Health Insurance

What is income protection

Brief Description:

Accident Sickness Insurance or Income Protection it is known as in the industry as Permanent Health Insurance PHI.  Income protection pays an income to the policy holder when they cannot work due to illness or injury. 

The income starts at the end of a pre requested illness waiting period which could be from 4 - 52 weeks.  There are various waiting periods that are designed to fit in with pay you may receive from work or savings that you feel you could live on.  The longer the waiting period, the cheaper the policy.  This is because the insurance company wont have to pay out straight away and there is more chance that you will be able to return to work.  

The policies normally pay out until you either return to work or you reach State pension age.

Accident Sickness Insurance policies are designed to pay you an income but they are also designed to give you an incentive to return to work.  With this in mind, the maximum cover you can take out is 75% of your salary, less any State benefits to which you may be entitled.  This normally reduces the cover to 50% or 60% of your salary.

Income Protection Insurance cannot be cancelled by the insurance company (although it can be cancelled by you).  This gives you peace of mind to know that once cover is in place, it can only be cancelled by you.  The premiums for Income Protection Insurance are set with reference to your occupation (amongst other things) so if you are a desk based administrator, your premiums are likely to be substantially less than a person of the same age and health but doing heavy manual work.

There are two types of Income Protection Insurance - Pure Protection and Unit Linked.

Regular premiums payable: Yes

Guaranteed Premiums Available: Yes

Reviewable Premiums Available: Yes

Life Insurance included: No

Critical Illness Insurance included: No

Income Protection Insurance included: Yes - Maximum normally 50-60% of gross salary

Period of Cover: Fixed Term, normally to a retirement date e.g.  ages 55, 60, 65

Increase Cover option: Yes - can select a level income option or an increasing income option

Decrease Cover option: Yes, benefits can be reduced if you return to work in a reduced capacity

Waiver of Premium option: Not applicable

Lump sum pay out: No

Regular amount pay out: Yes, replacement income benefits start after specified deferred period.  For example:

• 4 weeks deferred benefit - this is the most expensive cover
• 26 weeks deferred benefit
• 52 weeks deferred benefit

Any investment cash in value: For a unit linked plan.  No investment in a pure protection plan.

Tax Benefits:

• Private policies - Benefits are tax free
• Business policies - premiums or benefits are potentially subject to tax incentives, not usually both

Benefits can be put in trust: No

Suitable For:

• Adults - working - employed or self employed
• Family Protection
• Mortgage Protection
• Business Protection

Insolvency Compensation Limits: Insurance Company Funds - 90% of total funds invested.  No Limit. 

If you would like some more advice on income protection, contact us.

1. Low Income Health Insurance: Pure Income Protection

Pure Protection Sickness Insurance - Income Protection - Permanent Health Insurance - Non Investment Linked

The premiums you pay to this type of contract are not invested, they are just used to pay for your cover.

This means that if you surrender the policy, it will have no value.

2.  Income Protection Insurance UK

Investment Linked Sickness Insurance

Investment Linked Sickness Insurance - Income Protection - Permanent Health Insurance is sometimes known as unit linked income protection.

Each premium under this type of policy is invested into your choice of the life company's investment funds.  Each month, the cost of your cover is worked out and is paid for by cancelling the relevant amount of units.  In the event of your death or if you surrender the policy, the value of the policy less any charges would be given to you.

It is important to note that Permanent Health Insurance policies are designed for protection and not for investment.

Any surrender value is likely to be small.

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