Income Protection Guide

How does it work?

Income Protection (IP) insurance, also known Permanent Health Insurance (PHI) is designed to give you a regular tax-free benefit if you are unable to work due to health reasons, resulting in a loss of earnings. The policy will pay for as long as you are incapacitated, you retire or policy expiry.

PHI Income Protection can be claimed on as many times as you need to and being ‘permanent’ cannot be cancelled by the insurer. This is unlike inferior ‘budget’ type plans known as Accident & Sickness (AS) or Accident, Sickness & Unemployment (ASU) cover, which are types of Mortgage Payment Protection Insurance (MPPI) or Payment Protection Insurance (PPI).

Do I need Income Protection?

If you earn an income that would be affected by you suffering illness or injury, and as a result you couldn’t afford to rely on state benefits or any other provisions available, you should consider Income Protection Insurance.

Hints and Tips

Some useful issues to think about when considering Income Protection Insurance cover.


One of the most important, if not the, most important aspects to give attention to is the definition of incapacity that the policy will attribute to you. These will be referred to in the quote provided, but the most common ones are:

  • ‘own occupation’ – you will be able to claim if your incapacity is sufficient to prevent you from following your own occupation;
  • ‘any suited occupation’ – you cannot claim unless you are too ill to carry out your own occupation, and any other occupation to which you are suited, as defined in your policy;
  • ‘any occupation’ – you cannot claim unless you are too ill to carry out any job whatsoever;
  • ‘activities of daily living’ – you can only claim if you are unable to carry out a selection of everyday tasks, such as washing and dressing yourself; and
  • ‘activities of daily working’ – you can only claim if you are unable to carry out a selection of work-related tasks, such as walking, communicating and exercising manual dexterity.

Some of these definitions of incapacity may not be available for certain occupations. However, depending on your occupation, one insurer may offer you a better definition than another.

Similarly, insurers vary as to their assessment of what risk your occupation represents. Typically, occupations are classed into one of four group, 1 the least hazardous – including administrative and clerical roles – ranging to 4 for more manual jobs. The occupation class can have a significant effect on the monthly premium offered. This is not just because individuals with more manual based jobs are more likely to suffer injury but also because the nature of some illnesses and injuries are more likely to prevent carrying out manual tasks.

How much can I cover?

Again, this varies somewhat between insurance providers as some offer more than others. The simplest limits are half of your pre-tax income. Remember thought that the benefit is tax free and generally paid in addition to any state benefits you are eligible for.

Another aspect to decide on is what deferment period to choose. This is the time you have to wait before the benefit becomes payable. Typically, this would be in line with when your company sick pay would cease. However, you may decide to select a longer deferment period to fit your budget, on the basis that the longer it is, the cheaper the monthly premium.

‘Future proof’ your cover

The cost of living and evidenced by RPI and inflation can erode the value of your benefit, even more so with long-term policies such as this. In addition, your personal circumstances including your income may increase rendering your plan less effective than when you first took it out. However, flexibility options and indexation allow for you policy to adapt accordingly:

  • Indexation – Also known as increasing term cover, means that your plan will increase by a set percentage or in line with the Retail Price Index (RPI) on the annual anniversary of the policy start date. This ensures that the cover retains its value compared with level term which remains constant.
  • Flexibility – Most policies have ‘Guaranteed Insurability Options’ built-in which enable you to increase the benefit in future without the need for further underwriting. This can prove cheaper and much easier than taking out additional, separate cover in future, depending on your health and circumstances at the time.

What does it cost?

The cost of PHI Income protection cover is dependent on several factors including your age, smoker status, occupation, benefit required, term length and deferment period. Depending on your personal circumstances you may find that the cover you ideally want is more than you budgeted for. In this instance, you can take advantage of ‘limited payment’ options where the maximum payout period of any claim is limited by a set period, for example, 5 years.

Next Step

Why not fill out our live quote form to get some comparison quotes for Permanent health insurance income protection cover? We would also encourage you to have an informal, friendly chat with one of our experts who will be able to answer any questions you have and make you aware of relevant options that may be of interest to you.

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