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Income Protection

Income protection insurance or 'permanent health insurance' aims to give you an income if you can't work in the event of sickness or illness.

This can be anything up to three-quarters of your normal wage, less any state benefits you get.

For the self-employed, insurers usually base the level of cover on your taxable income at the point of a claim.

All pay-outs for income protection insurance are tax free and usually continue until you recover or you reach your selected pension age / term of the policy.

Pros

Will be beneficial if you or your family relies on your wage to pay most of the bills and if you want the security of continuing pay outs.

May be useful if you are self-employed or don’t have a job with sick pay.

It's up to you how you spend the money each month.

Cons

This is one of the more expensive forms of this type of insurance if you have a short deferment period.

Permanent health insurance, also known as income protection insurance and income replacement, provides a tax free income if the policy holder becomes unable to work through illness. An income is paid until retirement age , the end of the policy term or until the policy holder is able to return to work.

Permanent health insurance does not normally cover unemployment / redundancy.

There is a period following the accident or illness which must elapse before the policy begins to pay. This can range from a month up to two years and is known as the deferment period.

Most income protection policies will give a stream of monthly tax-free payments equivalent to between 50% and 65% of gross salary, although some companies will offer up to 75%.

Premiums are dependent on the monthly income required, age, current state of health smoker status and occupation. The deferment period also affects the premium, with a shorter period resulting in higher premiums being required.

Many company pension schemes include some form of permanent health insurance as part of their benefits package. You should check you benefits package before applying for an Income Protection plan as these can affect your maximum benefits allowed.