Permanent health insurance

Permanent Health Insurance

This page was last reviewed on 1 November 2020

Permanent Health Insurance – The ultimate guide

The article below explains all you need to know regarding a permanent health insurance (PHI) policy, a name given to a specific type of income protection insurance in the UK.

What is income protection insurance?

During your professional career, you may find yourself unable to work, for various reasons. Income protection policies are long-term policies. They provide you with regular payments until you are able to return to employment.

Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.

Topics that you will find covered on this page

Who might need a permanent health insurance policy?

Illness and injury can unfortunately have a very sudden and severe effect on someone’s health and ability to work. Thus, income protection is wise if your savings would not cover you if you could not work. This is especially true for those with a family or other financial commitments.

If you were to experience a permanent health problem and could not return to work, even the maximum state benefits might not amount to the loss you experience. The fact is that, often, the government employment and support allowance would cover little more than the necessities, such as rent/mortgage payments and home utilities. A PHI policy can help fund part of your other outgoings, such as recreational activities.

Does income protection require critical illness?

Critical illnesses are covered by critical illness insurance, rather than insurance for income protection. Both policies give a tax-free entitlement to policyholders, but critical illness cover gives a one-off lump sum payment, while income cover gives regular cash allowances to  an employee when they are no longer able to work.

Here is a short video explaining how it works.

Should I take out a policy to safeguard my income?

Whilst PHI insurance comes at a cost, think about what you would do if you suffered a permanent or persistent illness, or had an injury that left you unable to work. Statutory Sick Pay in the UK only covers professionals for up to 28 weeks, and only pays £95.85 per week.

If you do not have significant savings and/or company sick pay at your place of work, you may find yourself in trouble. Thus, the cost of income protection insurance may be offset by the benefits it would bring if you did find yourself unable to work.

Does my employer have an insurance income protection policy?

Some employers do offer their own policies and benefits for their employees in the event they find themselves unable to work. However, individuals that are self-employed will not have this income protection benefit, and, regardless, not all employers offer such benefits.

To find out if your employer offers benefits for employees that cannot work, check your contract and speak to them about the technicalities. A PHI policy can give you peace of mind that, should you experience an illness or injury, you can receive sickness benefits for the rest of your employment contract/until retirement age.

Can I get long-term income protection if I’m self-employed?

For self-employed workers, earnings protection is highly beneficial, as these individuals are not entitled to sick pay or employee benefits from an employer.

There are a variety of reasons why PHI might be a good idea for anyone who is self-employed. Due to the nature of a self-employed job, there is no sick pay or employer protection. The benefits of PHI, therefore, are that you can continue to receive a regular income if you cannot work due to sickness or injury.

Will being self-employed impact the cost of my PHI benefits?

Being self-employed in itself should not be an issue, however it can indirectly affect the policy. The reason for this is that the cost can change as a result of your profession, as your position can lead to different types of health risks.

Furthermore, the process for making claims might be more complicated if you are self-employed. This is because to receive your contributions you must provide evidence of your incapacity to work.

At what age should I take out my scheme?

There is no set rule on what age it is best to get a PHI policy at. The younger you are, the more likely you are to get a better rate. Cheaper premiums might give you more of a choice when it comes to the deferral periods and policy stop date you choose. However, long term, it could work out more costly. 

"There is no set rule on what age it is best to get a PHI policy at. The younger you are, the more likely you are to get a better rate. Cheaper premiums might give you more of a choice when it comes to the deferral periods and policy stop date you choose. "

What might happen if I have a pre-existing medical impairment?

In some cases, exclusions will be put in place that stop the policy covering your salary if your illness or accident is related to your impairment. Alternatively, the plan might be modified such that your condition is covered, providing you pay an additional premium.

Not all medical conditions will affect the policy given by providers though, and only incidents in the last 5 years are considered in the assessment.

How much of my earnings will I receive?

Claimants receive a percentage of their salary. Thus, the exact value of payouts varies between workers. Typically, a claimant will receive between 50-70% of their gross earnings.

The rates given vary between companies, so do some research to find the rate that best suits you. 

You also need to consider how long you would want to wait before receiving your first payout if you had to make a claim, and how long you would want the policy to last- we explain this below:

income protection policy

What is the waiting period with PHI?

The waiting/deferral period determines how long you will have to wait before receiving your first provision. 

A policy with a longer deferred period is likely to reduce the expense of the cover, but if you choose too long a period, you might experience financial difficulty. It is important to think about how long you could support yourself for, given your current finances and outgoings.

What age will I be covered until?

Typically, the policies tend to stop between ages 60 and 70, depending on the insurance company chosen and the preferences of consumers.

If you wish to have a longer lasting period of security, some insurers give coverage until age 70, though this often increases the prices of the policy. Others will end their coverage at an earlier age, reducing your premiums.

If you are confused about the length of policy and how to choose an insurer, seek professional and independent advice before agreeing to anything.

What will income replacement insurance cost me?

There are many personal factors that affect the kind of quotes you receive. Policy price can be affected by age, health, and smoker status, as well as the policy terms and type you wish to go for.

For example, the lowest prices will be given to younger people in good health that do not smoke (as smoking majorly increases your risk of getting illnesses such as cancer). Your occupation can also affect the cost, along with the deferral period and policy term.

What is the typical monthly cost?

In the UK, insurance to safeguard your earnings can cost as little as £10 a month, but typically people pay between £50 and £80 a month. Use an online calculator to work out what you might pay, given the details and nature of the policy that is right for you.

How will it affect my sick pay?

A PHI policy will not affect your sick pay. The whole purpose of PHI cover is to take over once your entitlement to sick pay ends.

permanent health insurance (PHI) policy

How can I get a quote?

There are a range of policies and providers out there, making PHI a complicated market to navigate. Whilst you can use online calculators to estimate quotes, we recommend shopping around and talking to a member of an advice team, who can point you in the right direction.

A professional adviser can discuss the quote in the context of your personal situation. They can also help explain the differences between policies, or answer any other questions you might have.

How do you get paid?

After you make your claim and the deferral period has passed, you will receive the agreed percentage of your gross salary on a monthly basis until your policy ends. Payments will be made into your bank account until the plan terminates, or upon death for users that do not survive to the end of their plan.

Are the PHI payments taxable?

You will be pleased to know that you do not have to pay tax on the income you get from your claim. This is because you have already paid national insurance and income tax when paying the monthly premiums.

What happens if I can’t return to work?

If you find yourself unable to get back to work, your policy will continue to provide you with a replacement income until the contract ends, or until you enter retirement or pass away. The exact policy terms will vary with insurance provider.

Can I lose my job?

There may be certain situations where an employer wishes to dismiss employees claiming PHI. Typically, a business may seek termination of your contract for three main reasons:

  • Headcount Restrictions- while claiming PHI benefits you are still counted as a member of the company.
  • Costs- although the compensation is covered by your insurer, your employer may still be incurring various forms of costs, for example car allowance costs.
  • Business sales- perhaps sales are low, or being reconsidered.
  •  

However, it is important to know that dismissal is only legally allowed if your contract states that redundancy is permitted, even in the instance that an employee is claiming PHI benefits and their unemployment would affect their entitlement to this. 

In case law, courts have commonly concluded that employers cannot terminate employment if the above clause is not specified.

If not specified in your contract, you might have grounds to make claims against your employer. The types of claims you might file to the courts are unfair dismissal claims, disability discrimination claims, and breach of contract claims.

income protection benefit

What exactly does permanent health insurance cover?

There are a range of circumstances that, should you find yourself in, PHI policies cover. Rewards are given in the case of injuries, accidents, illnesses, and long term health conditions. For the vast range of claimants, there are no specific circumstances that are not covered.

However, your policyholder will look at your medical history when you take out the policy, and make a formal assessment. Therefore, an individual might need to have adjustments made to their policy, to make an exception for their condition. 

Does it offer support if I lose my job?

If you find yourself unemployed, you will not receive a payout with PHI. There are a number of different salary protection policies, each with their own differences and duties. For unemployment support, you should look into unemployment insurance.

Does it pay out if I die?

If you die, your permanent health insurance policy ends. If you want to protect your assets in the case of death, for example to give benefits to your children or partner, you should look into life insurance policies.

If you have dependents that rely on you for financial care and support, life insurance will offer them protection in the event of your death.

What are the alternatives?

If you don’t wish to take out PHI, there are some other options available to you. We recommend seeking professional guidance on which option is right for you.

One option is mortgage payment protection. This form of protection ensures that you can meet your mortgage payments should you suffer long term sickness. It will not, however, cover other bills.

 

Another option is to add critical illness cover to your life insurance policy. However, the difference between critical illness cover and PHI is that critical illness cover only offers a one-off lump sum.

You may be able to claim employment and support allowance (previously known as an incapacity benefit). However, the income benefit limit sets caps on the maximum you can receive. The total you can claim depends on a number of factors.

Finally, some employers may offer enhanced sick leave as an incentive to work for them. This is a question you might want to raise at work. 

Can I take out more than one policy?

You can take out different types of policies to safeguard your earnings, since they all serve different purposes and protect you in different ways. The more steps you take, the more benefits you will receive should something go wrong, giving you more confidence.

Furthermore, some providers offer bundles that combine the different policies. For example, you can get combined life insurance and income protection, or accident, sickness, and unemployment (ASU) cover.

 

Learn more about health insurance and related topics

Permanent Health Insurance

Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.

Whole Life Insurance

Whole life insurance is a type of life insurance policy that, unlike term life insurance, provides life insurance cover for the rest of your lifetime. Read more about them here.

Family Income Benefit

Family income benefit is one of the three main types of life insurance policy. It guarantees your loved ones a regular monthly income if you die during the term.  Read more about it here and see if it could help you.

Disability Insurance

Disability policies are a type of income protection insurance. If you are unable to work, your benefits package will pay a monthly benefit amount to replace your lost income.

Group Income protection

Group Income Protection (gip) gives employees that find themselves unable to work due to illness or injury a replacement income. It is salary protection insurance, taken out by companies as an employee benefit.

Endowment Policy

An endowment plan is a type of life insurance policy. As well as acting as a life insurance policy, it is also an investment fund. Read more about them here.

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