Permanent Health Insurance (PHI) / Income Protection

Permanent Health Insurance (PHI) / Income Protection

PHI is also commonly known as income protection. This type of product is taken out in order to provide a replacement income if the individual is unable to work due to accident, illness or disability. The maximum amount of benefit is capped, typically at 60% – 65% of a gross salary. If the benefit payable is too high then there may be little incentive for the policy holder to return to work if they were fit and able.

The policy can be set to run for any term, as long as it doesn’t exceed the normal retirement age for the occupation.

A deferred period (the timescale that the individual must be unable to work before the policy will start to pay a replacement income) applies to this type of cover. All income protection policies are set up with a deferred period, normally of at least four weeks, so that short term illnesses such as colds are excluded (premiums would be extremely expensive if they covered any time off work at all). Therefore the longer the deferred period the cheaper the premiums will be. When arranging an income protection policy, the deferred period should be adjusted to the individual circumstances and budget and is often set up in line with the employer sick pay benefits (if applicable) e.g. if an employer will pay full salary for three months after the employee is unable to work due to accident or sickness, then a deferred period on the income protection plan can be set for 3 months so that it will continue to pay benefits, once the employer has stopped.