PHI Income Protection Insurance ~ Typical Key Features
Designed to pay out an Income not lump sum on accident or sickness. It usually has a waiting or deferred period from 4/8/13/26/52 weeks. PHI Benefits are currently paid out tax-free on claim until you return to work or plan end date. Income Insurance Benefits may be level or inflation linked. Medical evidence may be required and a medical examination for those with health issues. Premiums may be guaranteed or reviewable. Cover may be based on maximum of 50% to 65% of your taxable income. If your self-employed terms usually based on annual net profits. Waiver of Premium is where the Insurer waives/protects & covers your premiums after a deferred period of 4/8/13/26 weeks due to sickness or accident.
If you are an employee and you fall ill, your employer might pay you your full pay for a few weeks or months. By law, an employer currently must pay most employees statutory illness pay for up to 28 weeks, though this will probably be a lot less than your full earnings. After that, you would probably have to rely on state benefits. If you are self-employed then you will not have this option.
So what is a good way to protect your income? The answer is take out PHI Insurance.
How does Income Protection Cover work?
“PHI Income Insurance” does not allow you to be better off sick than well. So the maximum amount of income you can replace is the after-tax earnings you have lost, less an adjustment for any Uk State benefits you can possibly claim.
If you are employed this means that dependent on the Insurer – 50%/65% of your gross income but then paid out tax free. If self employed then this is usually based on last 12 months annual net profits. Note that the old PHI Insurance rules used to be based on 75% of income but then taxable (so beware of changing these old plans without advice).
Different rules also apply for executive PHI or Group PHI.However, some employers arrange group income insurance protection for their employees as a perk of their job, which can pay out an long term illness income after the statutory sick period. So check what you are entitled to.
Why not just take out Critical Illness Cover instead?
Critical illness cover pays out a tax-free lump sum if you are diagnosed with a life-threatening condition for example cancer, heart attack, stroke, diabetes etc; listed in the policy. It is a possible cheaper and simpler alternative to Income Insurance. But there are lots of common situations when Critical illness would not pay out – for example, if you had back problems or a stress-related illness. Additionally, not all occurrences of the critical illnesses listed are covered, for example some early stages of cancer are not covered. Ideally you should have both plans if your budget allows this. For more information on this & costs get Critical illness cover quote or talk to a professional broker.
Is PHI Income Insurance the same as Accident, Sickness & Unemployment or Mortgage Payment Protection Cover?
Accident, Sickness & Unemployment insurance can also be referred to as Mortgage Payment Protection insurance or redundancy insurance and will provide you with an income to meet your expenses if you are off work sick, have an accident or are made redundant. It pays out a monthly benefit to cover your mortgage and other related costs but for a limited period.
You may choose the amount of benefit you would like to receive, although there are some limits on the maximum amount. The premium will be a percentage of the amount of monthly benefit you would like to receive. Benefits are usually payable for a maximum of 12 or 24 months unlike Income Insurance which may pay up to when you retire usually age 65. Some policies will also allow you to choose whether you want to receive benefits for accident and sickness only, unemployment only or all three. Most policies will also have a deferment period of usually 30 days. This is the period of time you will have to wait after losing your source of income until you may claim the policy benefit