This article was last updated on 1 July 2022.
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.
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.
Permanent health insurance (PHI) is one of the types of policies on the market. By definition, it is designed to provide you with benefit payments if you cannot work due to disability or illness.
These policies are designed to be used in addition to statutory sick pay (SSP). This is because they cover long-term time off work, whilst SSP is for short term issues.
Insurance for income protection covers time off work for any disability or illness. This might be a ‘critical illness’, but does not have to be. Critical illness insurance is a different type of cover that only pays out if you suffer an illness of a predefined list.
Another difference between the two is that critical illness insurance pays out a lump sum that you can use as you wish, whilst income protection pays out in regular instalments in the place of lost income.
Both the lump sum payment and regular payments will be tax-free for policyholders. If you are confused about the type of cover you need, speak to an advisor for more information on the definitions and differences between the two.
An advisor can help you determine what type of cover is best for you based on the cash allowances you might need.
Here is a short video explaining more about PHI.
Generally there are no specific conditions or circumstances that are always excluded from PHI policies. They cover a wide range of liabilities: illnesses, long-term health issues, accidents, and injuries.
Depending on your medical history, however, you may require an adjusted policy. This is because if an individual has a condition that increases their risk of liability, they may be more likely to make a claim.
If the policyholder deems that you have a heightened risk of making a claim, they usually make adjustments to your policy.
If you are worried about losing your job, then you need to consider unemployment insurance. This is because PHI does not give financial rewards for parties that lose their job.
Unfortunately, this is the wrong type of policy for those looking to protect those close to them in the event of their death. Instead, try looking at life insurance policies. Life insurance policies help ensure payouts to your partner and children.
Only illnesses and impairments from the last 5 years need to be declared when taking out your policy. Even then, your impairment might not affect your plan at all.
Your policyholders will make an assessment of your situation and decide what to do. Normally, they do one of the following:
You can decide on the policy term, depending on the level of cover that you want and what premium you are willing to pay. Most policies will cover people until age 60-70. However, if you retire or die before this, the plan terminates.
A broker can help you determine when the best time is if your policy to end.
If, despite medication and treatment, you can’t get back to your daily duty, you need not worry. Until the contact ends, the provider will continue to help replace your salary.
Often when claimants have been claiming PHI for a long time they get worried about losing their jobs. But, case law states that employees claiming PHI can only be dismissed if your employment contract states that you can be made redundant in such a situation.
So, you should check whether redundancy is legally allowed in respect to your contract before worrying about it.
An employer might want to terminate your contract due to falling business sales, headcount restrictions, and if the costs of meeting employee benefits such as car allowance is tricky to afford.
But, if your contract doesn’t consent to termination, they have no grounds to do so. You can make a complaint and might receive compensation.
In these situations you could potentially file unfair dismissal claims, disability discrimination claims, and/or breach of contract claims.
No one can predict illness and injury- they can affect anyone. Imagine if you could not return to work due to a permanent health problem. Would government employment and support allowance be sufficient to pay the bills?
If you couldn’t work and your savings plus state benefits would not be enough to pay bills for home utilities and rent/a mortgage, you should really consider income protection.
Unfortunately, for many people, savings and state benefits simply wouldn’t be enough. Even if the amount could cover essential bills, they might not be enough to fund your full lifestyle, such as activities and hobbies.
A replacement income through PHI is especially beneficial for people with a family or financial commitments. Receipt of these payments can help mitigate the effect that loss off your salary has on loved ones.
How long you wait for your first payout is known as the waiting or deferral period. You can choose how long this is, in line with your financial situation.
Consider your savings, and how long you have the ability to meet your outgoings without your salary. This can be difficult to assess, so you might want to get an advisor to look at your finances and give a helping hand before you choose a deferred period.
You will need to research the best rate for you, since the rates given vary between companies. Normally an insurance provider will give 50-70% of gross earnings.
Since a claimant gets a percentage of their salary the exact amount of a provision will depend on what your salary was in the first place. The fact is, clients after higher levels of salary cover will probably need to pay a bit more.
Again, this is a feature of the policy that you have some scope to influence. It will come as no surprise that the length of coverage affects the premiums of consumers.
Normally an insurer will offer cover until you are age 60. Your policy with the insurance company might end earlier though, should you retire or pass away.
Some insurers will offer salary security until age 70. This can be more expensive, but if it is something you want consider reducing your premiums by choosing a longer waiting period.
There are lots of types of protection. To get the policy that is best for you in this vast field, you should seek some professional guidance.
Mortgage payment protection may be one alternative to PHI. If you experience long term sickness it will help you meet your mortgage payments. However, unlike PHI, it won’t cover any other form of financial loss.
Some people choose to put critical illness on their life insurance policy. Critical illness cover only gives a one-off lump sum, though. And claiming is only an option if your illness is on the list of eligible conditions, so it is less flexible than PHI.
Some employers offer enhanced sick leave. They do this because it is an incentive to make you want to work for them! If you’re unsure whether you have this, ask the question when you are next in the office.
Some people will be eligible for an employment and support allowance (previously known as an incapacity benefit). The maximum available to claim depends on a few different things. The total maximum is set by the income benefit limit.
No! You can take out others in addition to PHI, to give you a better sense of trust and reassurance. This because they all protect you in different ways and have different purposes.
The good thing is that you can get bundles. These will combine different policies but normally with a discount!
For example, you can get accident, sickness, and unemployment (ASU) cover. Another example is combined life insurance and income protection, or
In fact, the more coverage you have, the more confidence you have. This is because you get more benefits should something go wrong. So, taking out multiple policies can be one of the many steps you take to protect your finances.
Obviously, PHI insurance has a cost. But, think about how you could live if you suffered an illness that left you unable to work. Or if you had a permanent/ persistent injury that left you in need of care. How would you fund the care without a salary replacement?
Statutory Sick Pay in the UK only covers professionals for up to 28 weeks, and only pays £95.85 per week. Once this ends, if you do not have significant company sick pay at your place of work and/or savings, you could be in monetary trouble.
So, one side of the argument is that the benefits protection would bring if you did find yourself unable to work offset the cost of income protection insurance.
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.
If you want one, find out what benefits your employer gives to employees that cannot work. You can speak to your boss, or check your contract. It might well be included as an incentive, especially for top positions.
Self-employed will not have this income protection benefit if they find themselves unable to work. In any case, not all employers offer such benefits even if you are not self-employed.
There is no sick pay or employer protection included with self-employed jobs, due to the nature of the work. You are essentially your own boss, so you have to arrange these yourself! This is why earnings protection insurance is greatly advantageous.
Furthermore, the types of tasks for self-employed jobs often require more walking and physical activity. So, an injury or illness that puts you in hospital may be more likely to impact your ability to work.
So, there are a variety of reasons why PHI might be a good idea for self-employed workers. But, the biggest benefits of PHI are that individuals are guaranteed a regular income if they cannot work because of sickness or injury.
One thing to bear in mind is that making claims may be a more complicated process if you are self-employed. This reason for this is because you must provide evidence of your incapacity to work to receive your contributions.
Being self-employed can indirectly affect the policy, because the system of assessment considers your profession. Your position and it’s duties can lead to different types of health risks, so this can increase the cost.
Age is one way of lowering the premiums of a PHI policy. However, there is not a strict rule as to what age is best.
The younger you are, the more likely you are to get a better rate. But, this can long term, work out more costly. This is because you are paying for the insurance for longer, and this adds up.
On the other hand, cheaper premiums give you more of a choice when it comes to the deferral periods and policy stop date you choose. For example, if you save money by taking it out earlier, you could choose a shorter deferral period.
Firstly, there is the price of the quote. Personal factors affect the policy price you are quoted.
Quotes can be affected by age, health, and smoker status. Another thing that affects the kind of quote are the policy terms and type you wish to go for.
The lowest prices will be given to people in good health that are young and do not smoke. Smoking majorly increases your risk cancer and other illnesses, so leads to inflation of the quote price.
As we discuss above, occupation can also impact the cost, as can the deferral period and policy term.
Then, you also have the cost of advice you take out when setting up the policy. You might not want to pay this, but it can be very wise to do so.
You can try a calculator online which will work out what your monthly payment might be. This will be based upon the details and nature of the policy you decide is right for you.
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. Remember, it can be more if you have existing conditions, a dangerous occupation, or an unhealthy lifestyle.
The whole purpose of PHI cover is to take over once your entitlement to sick pay ends. It is an additional form of cover, not a replacement.
So, in short a PHI policy will have no impact on your sick pay. But sick pay will not cover you if the result is that you are off work for a long while due to a health issue.
Payments will be made into your bank account. They continue until the plan terminates. Or, for users that do not survive to the end of their plan, they stop at death.
After you make your claim you must wait until the deferral period passes. Then you will receive payment. This is the agreed percentage of your gross salary.
Payments generally occur on a monthly basis.
Payments are not taxable, you will be pleased to know. So, you do not have to pay tax on the income you get from your claim.
But, this does not make the whole thing totally tax-free. You have paid the national insurance and income tax on your monthly premiums, which is why it is not charged twice.
PHI is a complicated market to navigate because there is such a range of policies and providers! What is more, providers have regular updates and changes to their prices. So, it can be hard to give a straight answer to questions such as the best provider and deal.
You can use online calculators to estimate quotes. However, it is recommended that you shop around and talk to a member of an advice team. They can point you towards good deals.
A professional adviser can explain the differences between policies. They can also discuss the quote in the context of your personal situation.
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Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.
