Independent Wealth Management

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Income protection

An Income Protection plan provides an income should you be prevented from working due to sickness or injury.

It is commonly known as permanent health insurance (or PHI). The word ‘permanent’ in the name, refers to fact that the policyholder is the only person who can stop the cover during the term of the policy (this would be through the non-payment of premiums or cancelling the policy directly.) The insurance company cannot withdraw cover, under any other circumstance, once the contract has been accepted and premiums have commenced.

These plans work by paying you an income, usually equivalent to 50 – 65% of your usual income, if you are unable to work after an initial waiting period. This income is generally paid either: until you are able to return to work; to the specified termination date of the policy; or until death.

If you are self-employed then the benefits under the plan are calculated based on the amount of your taxable income, normally for the 12 months before you became unable to work.

Care should be taken to check what the insurance company means by disability. As a general rule it is better to consider a plan that pays the benefit if you are unable to carry out your usual occupation. This type of cover is referred to as ‘own occupation’. Some plans will only pay a benefit if you are so sick or disabled that you cannot work at all.

The income from a PHI plan is tax-free, but you do need to be aware that any income you receive may have an impact on any state incapacity benefit that you wish to claim.

Do you have a Back-Up Plan?

You may have seen the adverts on national television for Unum Income Protection.

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Unfortunately, you’d soon find out if you became too ill to work. You might be surprised to find that Statutory Sick Pay is only £81.60 a week.  These days, that’s just about enough to fill up the average family car.

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Five Reasons for Income Protection

We insure our cars, phones, even our Sky box in case they stop working, but often not ourselves. But with over 2.2m people out of action due to long-term sickness [1] we’re just as prone to ‘breaking’ and the financial consequences are much more severe. It’s a lot more likely you’ll be off long-term sick […]

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