Life Assurance

Income Protection

Income Protection Insurance or Permanent Health Insurance is designed to protect an individual’s income in the event of being unable to work due to illness or disability and is available if you are either employed or self-employed. Some insurers will also offer Houseperson benefit, which is a lower level of cover to allow for the effect on a person who is responsible for running the household.

The plans can be set up to run for a pre-determined term or until retirement age.

Unlike life policies the benefit on an Income Protection plan is paid out in monthly instalments as a replacement for lost income.

If you are in a position to return to work you will need to resume your premiums to ensure that cover continues.There is no limit to the number of times you can claim against this type of policy.

Underwriting requirements are relatively strict for Income Protection Insurance and will consider health, medical history, occupation, hobbies, gender as well as smoker status.

Limitations of Cover

The maximum amount of monthly income that can be insured is limited to around 65% of current gross income at the time of application, although this varies among providers.

The monthly benefit is paid out free of UK income tax, under current legislation, however the amount payable can be affected by sick pay, pension payments and state benefits.

Increases to Cover

While some policies are set to a level amount of cover, it is possible to opt for cover that increases each year in line with the RPI (retail price index).

Other policies allow for significant increases in cover without further evidence of income.

Career break options are available from some providers who will continue to offer cover at a reduced level, known as Housepersons Benefit.

Deferred Periods

The deferred period is set when the policy is taken out. This is the period of time which passes after the illness or disability occurs before the benefit commences. There are a number of options available, usually 4, 8, 13, 26 or 52 weeks.

The deferred period you select will be guided by the resources available to you to fund your income needs ie savings. The longer the deferred period the lower the premium will be for the policy.

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Financial Conduct Authority.

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