What is the difference between an income protection plan and a income protection policy?

An income protection plan is a type of health insurance. It is also known as Permanent Health Insurance (PHI). The idea is that should you find yourself unable to work for a long period because of an accident, or an illness, or some other sort of disability, you will still receive an income. Different companies have different names for income protection plans - some call them income protection policies. But they all mean the same thing, you get some cashflow protection if you need it, assuming you have paid premiums for a period.

Income protection may seem to be rather expensive, as the premiums will be set at a certain amount for each £100 of your monthly income, and depend on your age and health amongst other factors. But it comes highly recommended as a health insurance because if you can't work, and have paid the premiums you are likely to be covered. This is often compared to the more confusing critical illness policy, which will only cover you against the diagnosis of certain serious illnesses. Critical illness policies may be more popular, but many people who have chosen it are doing so without fully comprehending the policies and how restricted the coverage is. Since critical illness only covers certain illnesses and then only certain treatments for them, it is difficult to get a payout on. A survey by Which? Magazine found that for each critical illness payout there were three income protection payouts.

So how important is it for you to get an income protection plan? Well, how about the fact that each person of average working age has a 20% chance of being unable to work for 3 months because of illness. Employer's sick pay in general will only cover you for a small period. After this they will be obligated to pay you only statutory sick pay, which is only £57.50 a week. Should you be self-employed, then the state will offer you state incapacity benefit, which can be only £48.80 a week. If you are a father of two, your income on long term incapacity benefit would be only £6,833 a year. Can you live on that? If you can, we'd love to know where you live and what you eat! An Income protection plan will mean that you can continue to have a lifestyle reasonably near that which you had before the accident or illness that stopped you working.

If you took out an income protection plan individually, your payouts are not taxed, and you can lower the premiums should you extend the period between the illness or accident and the payout. Premiums would be higher if you have an existing condition, but you can still be covered.

 

 

 

© AskFinancially.com 2008

Unemployment

Ask About

> Unemployment Insurance Overview..
> Who should take out unemployment cover?
> What does an unemployment protection insurance policy cover?
> What does a mortgage protection insurance policy cover?
> What does an income protection insurance policy cover?
> What does a payment protection insurance policy cover?
> What is the difference between redundancy protection insurance cover and unemployment protection insurance cover?
> What is the difference between a mortgage protection plan and a mortgage protection policy?
> What is the difference between an income protection plan and a income protection policy?
> Is it possible to insure protection for my mortgage repayments?