What is Permanent health insurance?
Permanent health insurance is the correct name of what is referred to in the insurance industry as income protection. An income protection plan is designed to pay a monthly income to you if you are off work with an illness or injury. Over 670,000 men aged between 40 and 64 are off of work for more than six months due to an illness or injury.
How do you claim on Permanent Health Insurance?
To be able to claim on a permanent health insurance plan you have to be considered ill enough to match the definition specified in your definitions issued by your insurance provider. The common definitions included on an income protection policy are;
- Own Occupation - the policy will pay out if you are unable to do your own job
- Suited Occupation – the policy will pay out if you are unable to do a job of similar skills and experiences
- Works Tasks – the policy will pay out if you cannot perform a certain number of activities from a specified list
If your insurance protection claim is successful then the insurance company will pay you on average 50% of your gross salary, (many insurance companies offer more than 50% but 50% is the most common).
For example, if you earn £20,000 you would be entitled to £10,000 a year or £833.00 per month, tax free, from your insurance provider. Your income protection plan will not interfere with any state benefits you may be entitled to. The income protection pay-out will normally work out to be 75% of your actual take home pay. If your job income fluctuates, for example, you work in a sales role so your pay is dependent on commission, you can opt to fix your income for the term of the plan. By providing proof of your income initially, if your income reduces in the future, at point of your claim the insurance company will take into account what you were previously earning.
With an income protection plan you are able to choose how soon the money is paid out to you in the event of a claim. This is referred to in the insurance industry as the ‘deferred period.’ The deferred period is a set period of time that has been agreed by prior arrangement where you will wait from the first day of your claim to when the plan actually pays out your first benefit. Even though you are covered straight away you will have to wait for this agreed period of time before the money hits your bank account. You will choose your deferred period from 0 days, 1 week, 30 days, 13 weeks, 6 months and 1 or 2 years. The longer deferred period you select the cheaper your plan will be but you will need to ensure that you have the provisions in place to cover you for this period of time. If you are self-employed you may want a relatively short deferred period or if you have a sick pay plan with your work you may decide to postpone your income protections first payment until your sickness cover with your work expires and then arrange for your income protection plan to commence, ensuring there is never a period where you are not receiving an income.
With an income protection plan, many people will select to take their plan out up to retirement yet you may decide you only need sick pay until your mortgage has been cleared or until your children leave home. The shorter the term of your plan, the cheaper your premiums will be. Another way to reduce your premiums would be to limit your benefit payment as by selecting a one or two year plan for your income protection policy, the plan can still be in place until retirement however only ever paying out for a term of one or two years per claim.
- Class A1 - Professional rate class such as an accountant, lawyer or solicitor
- Class 1 - Executive, managerial and clerical occupations such as a computer programmer, administrator or receptionist
- Class 2 - Professional or managerial occupations such as a dentist, veterinarian or telesales operative
- Class 3: Skilled occupations such as a nurse, plumber or electrician
- Class 4: Skilled occupations involving a large degree of manual duties such as an agricultural worker, bricklayer or carpenter
The lower down the class you are, the more expensive your premiums will be. Many insurance companies will not offer Own Occupation to class 3 and 4 workers. However luckily there are insurance providers that do specialise in offering cover for them. Own Occupation is where an insurance company will allow you to obtain benefits if you can no longer work in your own occupation.
It is important that you speak to a Proadvice financial adviser before taking out an income protection policy as sometimes you may decide that you belong in one category but your day to day role actually puts you in another. For example, a computer programmer who has to travel around the country and builds up a lot of business miles, may find that he is actually priced as a class three, rather than a class 1.
Your medical history can also have an impact on your income protection plan as it would with all protection polices such as life insurance and critical illness cover. As income protection is the plan that is most likely to be claimed on than any other plan, the insurers can be extremely strict in comparison to the other plans. An example of this is, a bad back or time off work with stress may have no impact on a critical illness plan or life cover policy however with income protection the insurer is likely to offer an exclusion on the condition.
The longer there is a gap between suffering from a condition and setting up an income protection policy the more likely the insurers are to exclude it. Whether the medical condition will be excluded from your policy or not will usually be based on the report from your GP. If your GP thinks that your knee may be permanently weakened then the exclusion will probably stay throughout the term of the plan. As over time there are ever increasing medical advancements the insurance company may be willing to reconsider the case. It has been known for exclusions to be removed later down the line. Any serious conditions, such as cancer, stroke or diabetes would mean you would be unable to ever get income protection regardless of when you suffered from the condition.
What is the difference between Permanent Health Insurance and Private Medical Insurance?
Permanent health insurance provides an income in the event of you being ill and will pay you a tax free monthly income to help you to keep up your repayments for your mortgage, rent and bills.
Private medical insurance helps you to get the best treatment available to you.
What is Critical Illness Cover?
Critical illness insurance is a long term insurance policy designed to pay out a lump sum or income on the diagnosis of certain life threatening or debilitating (but not fatal) conditions, such as a heart attack, stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs.
Once a successful claim has been paid by the insurer, it is at your discretion to use your money as you see fit. This could be to pay off your mortgage, cover your bills while you are off work, protect your family or pay to have private treatment. The money is yours and it is completely up to you what you decide to spend it on. In some cases the money could be used to change your home to suit your new circumstances if needed, such as adding a wheelchair ramp. The choice is down to you and your own personal circumstances.
It is usually cheaper to take out life and critical illness cover than critical illness on its own. Critical illness cover is more expensive than life cover on its own as you are up to seven times more likely to claim on a critical illness policy. The good news is that a critical illness policy does not cost seven times the amount but still works out more cost effective to take out a life and critical illness policy.