Income Protection
Income Protection is also known as Permanent Health Insurance. This benefit will replace a proportion of your income in the event that you are unable to work due to ill health for a certain length of time. Payments will continue until such time as you return to work or retire. Some providers will take account of the state invalidity benefit and reduce the benefit where this is payable while others will pay a benefit in addition to this. On the provision that premiums continue to be paid, the insurer cannot cancel cover irrespective of the number of or length of claims made.
Premiums
Premiums are determined by the level of benefit selected, age, sex, health, family history and also the period before which benefits will be paid. It is possible to arrange for benefits to commence between 4 and 104 weeks following illness. The longer the period before benefits are required, the cheaper the premium. Premiums can often be significantly higher for women as statistics demonstrate that women are more likely to claim than men.
Benefits
Benefits will be paid after the policyholder has been unable to work for a specified period of time. For all plans that commenced after 1996, payments will be made as regular tax-free income and will continue until retirement or earlier return to work. In the event that a lesser job is taken as a consequence of the illness or disability, a proportion of the benefit can sometimes be payable to cover the shortfall in earnings. Benefits can be written on two bases, “own occupation” and “any occupation”. The former will be more expensive and is a valuable benefit for people employed in specialist roles. “Any occupation” means that the benefit will only pay out if the claimant is unable to undertake any employment, this might not bear any relation to the current occupation. In addition to this, it is possible to write the plan so that the benefits (and therefore premiums) increase each year to take account of inflation. There is also the option for these increases to continue once the plan is in payment. Most plans will have some policy exclusions and these vary from provider to provider. Additional exclusions and loadings (increased premiums) may be applied where the applicant has or has had health problems.
Accident & Sickness Insurance
This is a relatively simple form of cover. The tax free benefit will be payable if the policyholder is off work due to accident or sickness. Most contracts are only available on an annual basis, and the Insurance Company will reassess their offer of cover each year on the basis of up-to-date medical evidence.
In general, a lump sum will be payable in the event of death, permanent disablement, loss of one eye or loss of one limb, or permanent total disablement. Cover for temporary disablement and medical expenses will also be available for an additional premium. In the event of temporary disablement, a weekly sum will be payable for a defined period if the policyholder is unable to carry out his own occupation for a time.
Payments in the event of sickness will also be made on a weekly basis for a maximum specified number of weeks. A deferment period will be included as with Income Protection; however, as the premiums tend to be cheaper a shorter deferment period may be affordable.
Policies such as these are commonly used for travel insurance, or to bridge the gap between an employer’s sick pay ceasing and the Income Protection benefit coming into force.
Contribution Insurance
The plans detailed above will offer this benefit subject to satisfactory medical underwriting. In return for a small additional premium, the insurance company will maintain premiums as having been paid in the event that the policyholder is unable to work through sickness or injury. Premiums will continue to be paid until a claim is made, the policyholder returns to work, or until retirement. The availability of this option will depend on the age and health of the applicant.
Guaranteed Insurability
This option is available to applicants aged 45 and younger. It offers the option to increase the benefits payable under the above contracts, within certain limits, without additional medical evidence being required. As with the “buyback” option for Critical Illness cover, it will increase the price of the plan, and where the applicant is in good health, it may be possible to secure superior benefits elsewhere for a lower cost.
Critical Illness cover is available as a stand-alone contract as well as being linked to life cover, and endowment plans. Where it is included as an added option, most contracts will pay out in the event of critical illness or death whichever is first.
The majority of Critical Illness contracts include payment in the event of total permanent disability and many will pay smaller amounts where a lesser disability arises. The option of “buyback” can also be included. This enables the policyholder to retain the plan following a claim without further medical evidence. This will often incur increased premiums. In some cases, certain illnesses may be excluded from the policy and therefore a payment will not be made in the event that the policyholder suffers from the illnesses specified.
Critical Illness Cover, when provided alongside Income Protection, offers valuable additional protection reducing the impact of lost future earnings and helping to cover expenses such as home modification, which often follow a serious illness.
