Define: Permanent Health Insurance (PHI)
Permanent health insurance provides a regular tax-free income for policyholders if they are unable to work due to accident or sickness. It is available to both the employed and the self-employed.
The benefits, which can be level or inflation-linked, start after a ‘waiting’, or ‘deferred’ period, which is set when the policy is taken out. This can range from four weeks to 52 weeks.
Typically, the longer the deferred period, the cheaper the policy. The cost of policies is also determined by your general state of health, age, occupation and the level of income required.
Once the benefits have started, they will continue until the policy expires, or the insured person returns to work or dies. However, in many cases a policy will have a fixed term, usually to the standard retirement age, i.e. 60 in the case of a woman, 65 in the case of a man.
The exact level of the payments you receive will differ according to whether you take the policy out yourself or as part of an employer’s group scheme, and there is generally a choice of budget, standard and comprehensive plans.
Many employers place a ceiling on the percentage they will pay out, e.g. 50% or 60% of income. Also, PHI policies are permanent and cannot be cancelled by the insurer before the agreed date, regardless of the number of claims made, unless premiums are not paid.
As a term assurance policy, there is no investment element to a PHI policy, and no ‘survival’ payment if you live beyond the term.
Note: Permanent health insurance is sometimes referred to as Disability Insurance, Income Protection or Income Replacement.
How much PHI do I need?
This depends on your individual circumstances, in particular whether you can afford a long ‘deferred’ period, e.g. one year. Often, this will depend on the amount of time your employer will support you when you are off work. Be sure to discuss this with an experienced broker, as you don’t want to be caught short.
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