Permanent Health Insurance (PHI) or Income Replacement policies are designed to provide the policyholder with a replacement income in the event of a short and long-term sickness or disability. Payments are usually made when the policyholder cannot undertake their own job due to illness or injury.
PHI will pay out a guaranteed level of income every month for as long as your incapacity continues; if necessary until the day you hit 65 or will be officially retire. Normally, there is a maximum benefit payable from such a policy. This is usually 65% of a person’s annual income, less any benefits that they are entitled to from their employer and the state.
PHI policies can never be cancelled by the insurer and most will allow you to make as many claims as you require, so long as the circumstances are legitimate. Depending on the premium that you’re prepared to pay, the monthly payments can be linked to the Retail Prices Index (RPI). This means that they automatically keep pace with the cost of living a process known as ‘inflation proofing’.
Accident, Sickness and Unemployment (ASU) policies will also protect a person’s income against illness or injury. However, the main point of difference is that it will also protect a person’s income if they were made redundant by their employer. Some ASU policies will also allow you to choose whether you want to receive benefits for accident and sickness only, unemployment only or all three.
ASU benefits are usually payable for a maximum of 12 months. However, some will pay the benefit for up to twice this, it all depends on the insurer. With ASU you are able to choose the amount of benefit you would like to receive within certain limits for the maximum amount. The premium will be calculated as a percentage of the amount of monthly benefit you would like to receive and hence the higher the amount of cover you would like the higher the associated premium costs
ASU policies will only allow a singular claim if you use the maximum claim period at which point the policy will be cancelled, meaning you need to re-apply to set up a new policy. You do not have the option of ‘inflation proofing’ such a policy. The benefit, once chosen, is fixed and if you wish to increase it then you must apply again for a new policy with a new benefit.
Financial Expert Mortgages offers the best advice in the UK to find which insurance policy fits your financial shortfall should the need arise. Our adviser will compare our panel income protection UK providers and find you the best income protection product to suit your needs.