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Financial Calculators and Tools - London South East

Income Protection Insurnace

 

More Information on Income Protection

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Permanent Health Insurance
Permanent health insurance (PHI), variously referred to as 'income protection cover', 'disability insurance', or 'income replacement cover', provides a monthly income during periods of long-term illness or disability. The income from an individual PHI policy is now tax-free.

Whilst PHI can be taken out up to the age of 65, or whenever you plan to retire, it is often for the period of s mortgage. Although aimed at income-earners, plans are also available for people who have non-paying jobs such as housewives and househusbands.

Premiums will vary dependent on; age, gender, the period of deferment selected before the policy starts to pay out, how much income it will pay out, the insured's job, their medical history and the age that has been selected for the plan to expire at.

PHI income is limited to a percentage, up to 60% - 65%, of the insured's average pre-tax earnings less any other benefits that they may receive and will continue to be paid until the insured returns to work, or the expiry date of the policy.

Should the insured return to work after a long term, or serious illness, it may be to a less demanding and lower paid job. Some PHI plans include a 'proportional benefit', which will continue to pay out after a return to work to compensate for a reduction in income.

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The definition of being 'unable to work' varies from insurer to insurer, however the two usual definitions are:-
- "Unable to follow your own occupation"
- "Unable to follow any occupation"

Being unable to follow you own occupation, as opposed to any occupation, is a more restrictive definition and in consequence is more expensive.

The usual deferment periods are 4, 13, 26 & 52 weeks, although it should be noted that the 4 week deferment period is normally only available to the self employed.

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It is usual to select a deferment period that coincides with the time that employment benefits cease, or become reduced. To accommodate this some plans offer a 'tiered' benefit system.

For example, partial payout at say 26 weeks when the employment income is reduced, with full payout at 52 weeks when the employment income ceases.

Other than for house wife/husband, in the event of a claim proof of income will be required. Whilst its possible to apply for too high a level of cover, it is unlikely, in the event of a claim, for it to be met. In that case only the maximum percentage of proven income will be paid.

Additional options:
At the outset of the plan, it is possible to select the following type of PHI cover:-

- Level cover throughout the term
Providing the 'level' premium option is selected, the amount of cover and the monthly premiums will remain level throughout the term of the plan.

- Level cover that, when in payment, will increases annually.
Providing the 'level' premium option is selected, in the event of a claim the amount of cover will increase in payment each year whilst the monthly premium will remain level throughout the term of the plan. Having returned to work the plan is re-based at the original level of cover chosen.

- Cover that increase annually by 5%. Premiums will also increase annually.
Each year, the provider will advise you that the amount of cover will automatically be increased by 5%. The premiums will also increase according to age and morbidity costs.
Care should be taken not to increase the cover beyond the allowable percentage of income. In most instances, should the annual automatic increase be refused one year, the provider will cease to offer the increase in future years.

- Cover that increase annually by RPI. Premiums will also increase annually.
Each year, the provider will advise you that the amount of cover will automatically be increased by RPI. The premiums will also increase according to age and morbidity costs.
Care should be taken not to increase the cover beyond the allowable percentage of income. In most instances, should the annual automatic increase be refused one year, the provider will cease to offer the increase in future years.

Waiver of Premium:
With these types of contracts the applicant(s) may apply for 'waiver of premium' benefit.

This ensures that the premiums are paid on their behalf, by the insurer, if they were unable to follow their occupation due to long term illness or disability.

This benefit usually applies after they have been unable to work for 26 weeks, or their selected deferment period, and typically costs an additional 3-5% of the original premium.

Product Provider Selection:
Premiums and cover can vary from insurer to insurer, so it is imperative to make sure that you have a policy that meets your requirements.

However, in the absence of any 'special' requirements the provider recommended will be selected purely on the basis of cost.

Fees:
In order to minimise the charges in your plan; Radio Crosby will arrange with the provider that we place your plan with, to take our fees for arranging this product for you as a regular monthly payment rather than as 'indemnity' fees, i.e. a single one off payment.

We will also supply you with a personal illustration, brochure and key features document outlining the main features charges/costs and fees paid to us for arranging this policy.

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