Income Protection - Permanent Health Insurance

PHI pays you a tax-free income, usually roughly equal to 65% of your earnings at the time of disability, less anything you receive from the State or a former employee scheme.

Premiums can be high, but you can reduce them by opting for a lower specified level of income unrelated to your usual level of earnings. Additionally, you can choose to extend the deferment period between becoming disabled and starting to claim. This is normally four weeks, but can be voluntarily increased to anything from three months to a year. If you do choose this option, you must make sure you have enough savings to bridge the gap.

With any form of PHI, it is vital to link the insured income you choose to retail price inflation, both during the period when you are insured and for the whole payment period. These are usually equal. Making this form of extra provision costs more, but will be worth its weight in gold in maintaining the real value of your disability income over a prolonged period.

It is important to look for a policy that offers a guaranteed premium throughout its life. Some insurers may offer cheaper policies with a 'reviewable premium', but you will have no control at all over how much these increase as you get older. Similarly, you need to check the definition of eligibility to claim. The best definition is when you are unable to follow your own occupation (or an occupation suitable by training, education and experience). Any policy that only offers to pay out if you become unable to follow ANY occupation should be avoided like the plague.