Frequently Asked Questions for Income Protection Insurance
What is Income Protection Insurance?
Income Protection Insurance (aka PHI, Permanent Health Insurance, Income Insurance or Income Replacement), provides a tax free income until your selected retirement age (usually to between 50 and 70) if you are unable to work due to an illness or disability.
How Long will Income Protection Insurance Pay in the event of Incapacity?
In the event of claim, income protection policies can continue paying until your selected retirement age. For example a 20 year old male who took income protection insurance out until age 65 could claim on his policy for 45 years if required.
How much will Income Protection Insurance Cost me?
The prices of income protection policies vary between companies. The premiums are calculated based on the level of cover you require, your current health, your occupation, your age, smoker status and the length of cover you require.
Are there any Exclusions of Income Protection Policies?
Most income protection companies do not cover normal pregnancies (although complications may be considered) and HIV/AIDS unless contracted accidentally in the course of certain occupations or from a blood transfusion. Some income protection companies will also not cover wilful self-inflicted injuries or claims arising from drug or alcohol abuse.
Each income protection policy is underwritten individually based on your medical history, therefore if you have a pre-existing condition the insurance company may state that they will not cover you for any related injuries to that condition.
For full details about these exclusions we recommend that you consult your key features documents before choosing your policy.
What if I Become Unemployed or Decide to take a Career Break?
Most companies offer a 'career break' or 'non-working' option for income protection insurance, which means that cover can be suspended for an agreed amount of time. Premiums and cover will therefore be suspended until you decide to re-commence the cover, usually this means that no further medical evidence will be required. Some companies offer to continue the cover at a reduced amount during this time in case you would require income for your family should you become ill during this time, to see if your policy includes this you should check your documentation.
What Happens if I go back to Work Following a Claim?
You benefit will no longer be paid but cover can continue. If you return to work at a lower rat of pay then with most companies you can claim a proportional benefit to make up for the money you will lose.
How Many Times can I Claim on an Income Protection Insurance Policy?
You can claim as many times as needed and you can also claim more than once for the same injury/illness.
What is Hospitalisation Benefit?
Hospitalisation Benefit means that if you are confined to hospital for a number of days (specific details in key features documents) then you will be paid a benefit for each day you are kept there. This can be claimed on much earlier than your deferment period. Not all companies offer this benefit so if you are interested in it either contact us or consult your key features or policy documents.
What if I'm Self-Employed, a Contract-Worker or a Houseperson?
Income Protection Insurance is available for employed individuals, self-employed individuals, contract workers and housepersons.
Employed workers base their benefit on their gross annual salary, this will need to proved in the event of a claim.
Self employed workers will need to base a benefit on their pre-tax profits from their business after deduction of trade expenses. Upon event of a claim they would need to prove this income.
We recommend that contract workers and housepersons check the key features of their chosen policy to ensure they are happy with the cover offered. It is also recommended that they speak to one of our qualified advisors before completing the cover.
What Happens if I Change my Occupation?
Most companies don't mind if you change jobs and don't require you to tell them. It should be noted that if you salary changes then you may wish to discuss increasing or decreasing your cover.
Can I Offset the Policy Against Inflation?
Most companies offer an 'Indexation Option' or 'Increasing Benefit Option' which links the income protection insurance policy to either RPI, AEI or a set percentage each year. This costs slightly more and means that your premiums will increase along with the benefit.
What is the Difference Between Income Protection Insurance and Accident, Sickness and Unemployment (Redundancy) Cover?
Income Protection Insurance is a long term policy that covers for health related work absence, not redundancy. The policies will last until your desired retirement age and can be claimed on multiple times (even for the same illness/disability). For example a 25 year old who claims on an Income Protection Policy could receive a tax-free income for the next 25-45 years, depending on his selected retirement age and if he returned to work at a lower salary he could claim a proportional benefit.
Accident, Sickness and Unemployment (ASU) Policies are shorter term than Income Protection Insurance and can only be claimed for a maximum of 1-2 years, depending on the company. ASU Policies have the advantage that redundancy cover can be incorperated for employed persons only, meaning that you can claim on the policy should you be made redundant from you occupation. ASU policies can either be linked directly to mortgage payments, loan payments or general bills/income.
The final difference between Income Protection Insurance and Accident, Sickness and Unemployment Cover is that when applying for Income Protection Insurance, there is a much stricter underwriting procedure to go through. This means that upon application, they will ask more personal and medical questions, they may contact your doctors and for the larger cases may request you to have a small medical screening. The main advantage of this is that you know that full disclosure is being made through the doctor and therefore the chances of a claim being turned down are minimised. Obviously you have to take into account the it often takes longer to set up an Income Protection Insurance than an ASU Policy.
For further details on this, please read our online guide: The difference between Income Protection and ASU.