Income Protection Cover PHI - Insurance Summary
- Designed to pay out an Income not lump sum on accident or sickness
- Usually has a waiting or deferred period from 1/4/8/13/26/52 weeks
- After Covid 19 in 2020, many Insurers removed short deferral periods
- 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, say 50% to 65% of your before-tax earnings
- If self employed terms usually based on annual net profits
- Waiver of Premium (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 sick 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, you won't have this option.
State benefits are not generous. You would probably see a substantial drop in your income if you were out of work for more than a few months because of illness or disability. So what can you do to insure your income ?
How does Income Protection Cover Insurance work ?
Income Protection Cover Insurance aims to put you back to the position you were in before you suffered a loss. But it does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost less an adjustment for State benefits you can claim. This usually translates into a maximum of, say 50% to 65% of your before-tax earnings.
If you can't work because of illness for example some types of cancer, heart attack, stroke, diabetes etc; or disability, an income protection plan (also called income protection insurance, salary insurance, wage insurance, income life insurance or permanent health insurance, phi ) pays out a tax-free income.
However, some employers arrange group income insurance protection for their employees as a perk of their job, which can pay out an income after the statutory sick period. So check what you are entitled to.