Income Protection Insurance
Income Protection Insurance (IPI), ( previously know as Permanent Health Insurance (PHI) ), is an insurance policy designed to provide compensation to policyholders by way of regular payments in the event a policyholder becomes incapacitated and hence unable to work due to illness or accident. Income Protection Insurance may be purchased by individuals either on a stand alone basis or in conjunction with a life insurance or term assurance policy. Alternatively some employers may also take out critical illness insurance on behalf of their employees on a group basis.
Principal Conditions
Definition of Incapacity – can differ between policies and is an important consideration during the arrangement of any IPI. Examples of how Incapacity may be defined are provided below:
- Own occupation – the policyholder is incapacitated if they are unable, following illness or accident to perform their own occupation and are not working in another job.
- Suited occupation – the policyholder is incapacitated if they are unable, following illness or accident to perform an occupation suitable to them given their education and training etc.
- Any occupation – the policyholder is incapacitated if they are unable, following illness or accident to perform any occupation at all.
Benefit limits – nearly all policies limit the benefit payable to a percentage of the policyholder's normal earnings less state benefits. The limit is usually around 70% of gross earnings, but could be less for high earners.
Deferred period – the deferred period is the time between a valid claim and the commencement of benefit payments. The deferred period chosen has a significant influence on the cost of a policy and can vary from a few weeks to a few months.
Principal Restrictions
- The policies do not pay out if the policyholder becomes unemployed for a reasons other than illness or accident.
- There are a number of exclusions which apply to most policies, so that no benefits are payable for accidents or illness arising from events such as drug or alcohol abuse, criminal acts, intentional self-harm, wars and pregnancy.
- On change of occupation (or unemployment) the policy may become invalid, or the Insurer may require the premium to be amended to reflect the change in circumstances.
Suitability and need
- IPI policies meet the general need of earners to protect their income against the inability to work due to accident and illness. The level of state benefits provided (such as statutory sick pay (SSP) and incapacity benefit) usually falls well below the income of average earners, so additional insurance is required to make up the difference. The term of the policy is usually until the retirement age of the policyholder.
- IPI policies are not suitable insurance against unemployment in general as benefits are only paid if the unemployment arises due to incapacity. An accident, sickness and unemployment insurance policy or Mortgage Payment Protection Insurance may be needed as an alternative or to complement the IPI policy.
- IPI policies do not provide health insurance, death benefits or critical illness cover, so health insurance and/or life assurance and/or critical illness cover may also be needed by the policyholder.
Pricing
IPI policies are relatively expensive due to the guarantees offered by the policy. The choices involved and the potential for confusion when purchasing Income Protection Insurance are considerable which is why we would recommend any Private Client to seek specific consultation with one of our Independent Financial Adviser (IFA) before committing to purchase any Income Protection Insurance.
At Robertson Low our team of experienced advisers will take time to understand our Private Clients specific requirements providing them with competitive solutions to ensure they get exactly what they're looking for at the best possible price.
Further more we are there after the point of sale to advise you on changes or alterations you may require during the year or to provide you with advice and support in the event of a claim.
