PHI Income Insurance, What Is It All About?

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

Benefits of Having Life Insurance

Why Buy Life Insurance?

There used to be a sign on the wall of a local insurance agent. It said that no widow ever complained that her husband had too much life insurance. If any family provider passes away they could leave the survivors with a big problem unless they have enough savings to replace the lost income. Beyond the loss of that person, they may struggle to live well afterwards.

Replace Lost Income

So this brings us to the first benefit of life insurance. It is used to replace the earnings that were lost when a person passes away. When people sit down to figure out how big of a policy they should buy, they usually try to estimate how much of their income would be lost. They try to figure out what resources or assets they have to replace that money. Then, ideally, they choose a death benefit that can fill that gap.

If the premium for that amount of coverage is too high for their budget, they may buy less. At least the survivors will have some money to help them adjust to their new life.

Pass On An Estate

Insurance benefits are usually not taxed. In addition you may be able to purchase a much higher death benefit than the actual premiums you will have to pay. So a policy is one way to build an estate. This could be for a spouse or kids. In some cases, it could be for a favorite charity.

Avoid Disputes

Here is one common use of a life policy. Consider an example where a man owns an auto repair garage. Let us say that one of his sons has been trained and groomed to take over the business when the father dies. This man also has two daughters who have decided to become teachers, and they want nothing to do with working in an auto garage.

In this case, the father could leave the business to his son, and he could compensate his daughters with the proceeds from the policy. This can also be used to buy out a family in case two partners run a business, and one of them dies.

Build An Asset

Permanent life insurance policies, or those that can be converted into permanent policies, can also have another use. Over time they can grow a cash value. This cash account can be used as a source of funds. It could be borrowed against or cashed in. In some cases, you can find investors who will purchase the policy for some percentage of the face value. This is called a life settlement. So sometimes, a policy can be used to help build a cash asset that can be used while the insured person is still alive.

Terminal Illness

Some policies also have an accelerated death benefit. This means that the insurer will pay all, or part of, the death benefit, in cased the insured person has a terminal illness. Some have riders that will even pay for other things like nursing home care. This means that the insured person could actually get some benefit from their policy while they are still alive and need the money for care.

Learn More About Life Insurance

The right policy for you will depend upon your budget, plans, and needs. It may help to get some quotes so you can compare policies. It will also help to consult with a qualified insurance agent to make sure you understand your choices.

Financial ABCs For College Graduates – Part III – Insurance

Your course in financial basics is almost over. The financial ABCs course so far has covered banking and credit cards (Part I) and housing and taxes (Part II). Now we turn to ABC instructions on obtaining the best deals on insurance. Let the tutorial begin.

Life Insurance

Life insurance planning:

–Term Life insurance is cheaper than whole life insurance. Term insurance pays if you die before the policy expires. If you outlive the term of the policy, you and your family lose. But, the younger you are, and the healthier you are, the better your policy price. So you should buy term life insurance at a younger age for a long term to make it pay. Make sure the rate you have for a term life insurance policy is set for the entire length of the term.

Note: Whole life insurance, also known as permanent or cash value insurance, also has a time limit. If you die before the policy expires, it will pay a life insurance benefit, but if you outlive this policy, you get to collect what you have accrued in monies from your premiums, so you can get back some of that premium money, maybe more. However, many say you should have a whole life policy for at least 15 years to make it pay.

–Only buy the amount of life insurance benefit that you need. If you are young and have no dependents, you have no need for a large life insurance which is large in order to provide an income for your family. If you have no dependents and a pre-paid mortuary trust, you may not need life insurance at all or only a small benefit to take care of burial expenses if you have no pre-paid trust.

–If you happen to have young children, it is estimated you will need 7 times your annual income as a death benefit.

–Don’t lie about your health. If you are a smoker and tell the insurer you are a non-smoker, they can deny your death benefit if you should happen to die of a smoking-related cause of death.

-Don’t depend on a life insurance policy you get through your employer. It can be a good supplemental benefit for you, but if you should lose your job, there is no federal law that allows you to keep that policy.

–Buy directly though a company rather than go through an agent to save some money, or look for low-load policies which sell for little to no commission for an agent.

–Pay your policy premiums annually or semi-annually. If you have a monthly payment, and if it is automatically deducted from your bank account, the insurance company will charge you a handling fee.

–Don’t buy special life insurance for specific risks, like flight insurance, if you have a life insurance policy that covers you already. It’s costly and a needless duplication.

–Look for group life insurance plans such as those you can get through your alumni association.

–Save money by buying one large policy, say for $200,000, rather than two or three smaller policies for $50,000.

–Avoid riders. An accidental death or double indemnity life insurance is not worth the extra cost because the chances of predicting your exact death are slim. Other riders to avoid are the waiver of premium rider and the spousal or dependent rider.

–More is less. A $250,000 policy will cost less than a $240,000 policy. Multiples of $250,000 work better for pricing of policies.

–Check when the mortality tables come out with new estimates. The last was in 2003 and showed longer life expectancy, which lowers life insurance policy rates.

Health Insurance

Health insurance planning:

It is important to have good and adequate health care, but in this economy it is also important to know how to save your pennies when it comes to health care insurance coverage. If you exercise, stay in an average weight range, don’t smoke, don’t drink to excess, take any medications properly, and have regular health check ups all in pursuit of a healthy lifestyle, you will eliminate many health care costs. For example, some insurance plans are now charging up to $100 extra on the premiums of smokers!

Here are tips to get less expensive health care coverage: –Private health insurance rates are less expensive than group insurance rates, but your employers will offer group insurance. Most employers contribute to the premium cost, and that can save you in the long run, but, if you are young and healthy, it may be possible for you to find an insurance plan with comparable coverage for less money than what you will pay through your employer. Some employers will reimburse you for the difference, even the full benefit, in cash. If you have family members who have to be covered, you should also shop to compare if what you pay on top of your employer’s contribution for the extra it costs to cover your family is less or more than what you would pay for private insurance coverage of your family.

–Employers usually offer their employees two insurance plans, one with broader coverage for higher premiums and one with less coverage for less costly premiums. If you have to pay a percentage of your insurance premium costs, beyond what your employer contributes, you should evaluate the plan you take year-by-year as your circumstances change. Some years you will have children to immunize or to take to the orthodontist, and other years you will have maternity costs, which will dictate the higher insurance costs. But, look at your circumstances every year, and don’t buy more insurance than you need.

–Consider what the higher premiums offer you. Broader coverage, for instance will usually allow you physician choice, but if the physician(s) you use is in the lower rated insurance’s network, why pay for the broader coverage?

–Evaluate whether or not you should have higher deductibles and co-payments. With higher deductibles, you will pay less for your insurance, but more out of pocket. However, your out-of-pocket expenses will only be for times you use coverage, not over the course of your insurance policy, using coverage or not. If you have no maternity expenses or other expenses on the horizon and are fairly healthy, why not pay as you go and less for yearly insurance coverage?

–Open a health savings account, an account in which you and your employer can set aside monies for each year. This money can be used for deductible payments, co-pays, and other costs not covered by your health insurance, and you will not pay tax on these dollars. The rub is if you put in more money than you will use in a year, you forfeit the balance-so you have to do some careful pre-estimating.

–Ask employers and private insurers if they can offer you a lower rate on health care premiums as incentives for exercising, having a good weight, not smoking, etc.

Credit-Related Life Insurance – Should You Buy It?

Credit insurance is one of the most misunderstood and fraudulently marketed products in the field of personal finance. The types of insurance sold by creditors to debtors range from the old standard credit life and accident and sickness insurance to such worthless contracts as “life events” which will be explained below. Almost all of these policies are grossly overpriced and are a source of substantial profits for lenders and sales finance companies.

The use of insurance as a type of security for a loan or other extension of credit is not an inherently a bad choice. Both the creditor and the debtor can benefit from removing the risk of death or disability from the equation. If the reduced risk is a factor in providing a lower interest rate, or in basic credit approval, it can be a win-win situation. The problem arises, however, when the creditor intimidates or otherwise induces a customer to purchase an insurance product not for its effect on risk but as an additional and substantial source of revenue.

Normally insurance rates are set by the competitive market, which tends to hold rates down at least for the reasonably informed consumer who does some comparison shopping. Automobile insurance companies, for example, are highly competitive and the rates are seldom regulated. But in the context of an application for credit there may be no competition at the point of sale of the insurance. The creditor may be the only practicable source. The only “competition” is between insurance companies to see who can charge the highest premium and pay the highest commission to the creditor or its officers for selling the coverage. This tends to force rates up rather than down and has been dubbed “reverse competition”.

During the 1950s as consumer credit was expanding rapidly and many states had strict usury laws (laws limiting maximum finance charge rates) both lenders and sellers began relying on commissions from credit insurance premiums to pad the bottom line profits. Many engaged in selling excessive coverage (not needed to pay the debt if something happened to the debtor) and nearly all charged outrageous premiums, with 50% or more being paid to the creditor or its employees, officers or directors as “commissions” for writing the coverage. As incentives for paying as few claims as possible there were also “experience refunds” awarded to creditors, which sometimes raised the total compensation to 70% or more of the premiums. In addition, the premium was added to the loan or unpaid balance of the sale price and finance charges were charged on the premium.

Finally the National Association of Insurance Commissioners (NAIC) declared it had had enough of the consumer abuse and model legislation was drawn up and passed in nearly every state authorizing insurance commissioners to limit the amount and cost of credit life and accident and sickness insurance…the two biggest sellers in the field. In some jurisdictions the legislation had very little effect because the commissioners would not seriously exercise their new regulatory powers, but in others the rates came down almost immediately. Over a number of years where there was pressure from consumer groups the rates on these two products reached a reasonable level…with some states requiring that the rates produce a 50 or 60 per cent “loss ratio”….ratio of incurred claims to earned premiums….and limiting commission payments to creditors.

While this progress helped the consumer buying credit life and accident and sickness insurance creditors soon realized that it was easy to develop new products which were not regulated under the NAIC model law…products such as “involuntary unemployment insurance” to protect the consumer against job loss and “unpaid family leave” insurance to make payments in the event of a family emergency that required the debtor to have to leave his job temporarily.

Now, back to the question of whether you should purchase credit related insurance in connection with your next transaction, that really depends on the type of transactions, your individual circumstances and the kind of coverage in question. The first question to answer before deciding who to buy credit life insurance from is whether you need life insurance at all. The first step in the answer is “Do I already have life insurance in sufficient amount to cover this obligation and other needs?” If so it is obvious you don’t need any more, and the answer should be “No”.

Life insurance is justified when (a) there are dependents to be cared for after you are gone; (b) you have a moral obligation to a co-signer or co-maker or guarantor…possibly a family member…that you will pay at least your portion of an obligation, living or dead; (c) you own property or other assets which you want to leave to someone upon your demise, and unless this debt is otherwise paid the property may have to be sold to pay it; (d) you are buying something important “on time”, such as a home or an expensive vehicle, and don’t want it to be foreclosed or repossessed if you are not there to make the payments; or (e) you and a partner have invested heavily in a business that depends on both of you working, and you don’t want your partner to suffer a hardship if you are not there. There may be other reasons, but the point is that you must examine your individual circumstances.

You do NOT need life insurance if you have no dependents, own very little and are not leaving anything to anyone, and there is no co-maker to protect, because your debts essentially die with you. No one will have to pay them if you don’t. And if there is no money to bury or cremate your remains don’t worry. Something will be done with them because public health requires it. If you want an expensive send-off buy just enough to pay for the funeral and name a beneficiary with instructions to use it for that purpose so your creditors won’t try to grab it.

If you want to make gifts to others when you die, perhaps to make up for the mistreatment of them while you were around, life insurance is a very expensive “estate substitute”. It is better to put your money into savings than to pay it to some national insurance corporation on the hope that you will profit by dying. With life insurance you are essentially betting that you will die and the insurer is betting you won’t.

Assuming you decide you need life insurance, the next question is whether to buy it from a creditor or on the open competitive market. Most of the time it is best to purchase a proper amount of term life insurance payable either to a beneficiary, or to a trust for the benefit of minor dependents, or to your estate to be used to pay your last rites and obligations. If you have it paid to a beneficiary, such as your spouse or children, your creditors cannot claim it for the payment of your bills….unless you designate a particular creditor as a beneficiary to the extent of your debt obligation. No creditor has an insurable interest in your life except to the extent of your debt.

If you owe a mortgage debt on your home it may be wise to scale your term life policy to approximate the amount of your mortgage so it will be paid off for the benefit of your spouse and children if you, a provider, cannot provide. If you have a car note you need to adjust your total life insurance amount to discharge that obligation as well, so that whoever gets the car gets it free and clear. If you don’t care what happens to the vehicle don’t worry about the additional coverage. The creditor will take it and sell it and eat the balance. It is theoretically possible for a sales finance creditor to sue an estate for a deficiency after repossession but it very seldom occurs. It’s just too much trouble.

Aside from large obligations such as home mortgages and car notes there is usually very little justification for buying life insurance, and certainly not from a creditor. The premium rates on creditor-provided life insurance are much higher, as a general rule, than the rates for other life coverage.

Credit life insurance comes in three varieties…level, decreasing, and revolving. Level life insurance begins and ends with the same coverage over the term and is normally associated with single payment obligations. It is illegal in most states to sell level life insurance on installment transactions. Decreasing credit life comes in two sub-varieties…gross and net. Gross decreasing credit life begins with the “total of payments” (the principal plus all interest you will probably have to pay over the whole term of debt) and decreases by one monthly payment each month until it reaches zero at the end of the term. Net decreasing credit life starts at the “amount financed” and declines as the principal balance declines over the term. Usually net decreasing life is enough to pay the obligation because it tracks the remaining principal, unless you fail to keep up with the payment schedule and reduce the debt accordingly. Gross decreasing life will normally be excessive at the beginning and less so as the term continues. For example, if the principal is $10,000 and there will be $4000 in finance charges on a car note over a six-year term, the insurance will start at $14,000, but during the first month the debtor in fact only owes $10,000 plus a few days interest. This means that if the debtor dies during the term the excess coverage should be paid either to the debtor’s estate or to a named beneficiary. In some states creditors are limited to net decreasing life plus three or four months of payments just in case the account is in arrears at the time of death.

Auto accident deaths create a unique insurance situation where credit life is involved because the casualty insurance on the vehicle will often pay off the car note leaving the credit life insurance to be paid directly to the debtor’s estate as a cash benefit. Millions of dollars of insurance benefits have been lost because the surviving spouse was unaware of the double coverage on the note.

“Revolving account” credit life insurance usually involves a monthly premium computed on the basis of the outstanding balance being billed. The premium covers that amount for 30 days, discharging the obligation if death occurs before the next billing date.

Unfortunately, national banks that issue credit cards have developed a scam to get around the accusation of illegally high credit life premiums. Most of them if pressed would take the position that since they are a “national” bank the states cannot limit their insurance premiums, even if the state also limits premiums charged by state banks, but this legal position stands on shaky ground.

Many have issued their own policies in the form of “debt cancellation clauses” which are amendments to credit card agreements under which the account balance will be canceled if the debtor dies. But because of the risk that some state may clamp down on their rate-setting practices they “bundle” the credit life with up to a dozen other coverages, nearly all of which are not rate-regulated, so the charges produce a very large margin of profit. They won’t sell credit life alone, but require an “all or none” purchase of the various components such as credit accident and sickness, involuntary unemployment coverage, unpaid family leave coverage and even such weird products as “college graduation”, “having a baby”, “retirement”, “divorce” and other “life events”, each of which results in a month or two of benefits at the minimum payment level on the account. These bundled products usually cost upward of $1.00 per $100 per month, or twelve per cent per annum on top of the existing finance charge rate. Truth in Lending does not require that additional 12% to be reflected in the annual percentage rate, however, because the coverage is deemed “voluntary” and not part of the “finance charge”.