- BDM Financial Consultants Ltd
- Tel: 01453 750739
- Email: Brian@bdmfinancial.co.uk
Permanent Health Insurance
No-one likes being ill
Most people prefer not to think about long-term illness but official figures show that every year more and more people are absent from work for more than six months because of it. Forget about the big diseases, think backache, stress & other illnesses often not even considered as being life affecting from a sickness perspective.
Not surprisingly the state offers only minimal help and eligibility for incapacity benefit is strict. Even if you qualify, benefits are not generous and they are taxable.
Permanent Health insurance (PHI) is also known as income replacement insurance, income protection insurance, long-term disability insurance, disability income insurance or personal disability insurance and is available from most insurance companies.
It pays a regular income designed to protect your standard of living if you suffer long-term sickness or injury. Benefit usually starts after an initial waiting period of 4, 13, 26 or 52 weeks and it is payable until you return to work, die or the policy term expires, whichever happens first.
It's called permanent because the insurer may not cancel the policy no matter how often you claim for benefit, although policies usually expire when the policyholder reaches 60 or 65. It might seem a simple purchase but no two PHI policies are alike because exclusions vary and cover differs widely. The most important thing is try and get a policy on “own occupation” terms. This means it will pay out if you are unable to pursue your own occupation.
If you suffer a disability or illness that enables you to return to work but only on reduced earnings, maybe as a result of going part-time or taking a lower paid job, your insurance company will probably pay you a reduced benefit.
A number of factors influence the size of premium you pay.
Occupation - Not surprisingly administration clerks will pay a lot less than deep sea divers. Companies will refuse to insure people in very high-risk occupations. If you change your occupation some companies will continue to provide cover while others may cancel it. It's vital you tell your insurance company if you start a new job - failure to do so could invalidate a future claim for benefit.
Waiting period - A policy with a 13-week waiting period will typically charge lower premiums than one with a 4-week wait and so on. The waiting period chosen should either tie in with the end of sick pay from your employer or your own savings.
Gender - Not much you can do about this one (without getting pretty drastic !) but statistics show that on average women are more likely to suffer ill health than men during their working lives. Therefore, premiums are higher for a woman than for a man of the same age and occupation.
Smokers - Non-smokers pay less.
Most insurance companies guarantee that the premium you pay when you take out the policy will never change unless you decide to increase the level of cover it provides.
Making a claim
Contact the insurance company as soon as possible - don't wait for any deferred period to lapse.
Because the aim of a PHI policy is to replace earnings lost through sickness or injury without reducing your financial incentive to return to work, all policies set a maximum income benefit limit. This used to be 75% of average monthly earnings in the year before disablement, minus state benefits and benefits from any other disability insurance. But now PHI benefits are tax-free, the usual maximum benefit is between 50% and 60% of a claimant's gross salary, plus state benefits.
When you are well enough to go back to work contact your insurer who will stop benefit payments. If you go back to work on a part-time basis or take a lower-paid job, your insurer may pay you reduced benefit.
If you need more advice contact us now.