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Income protection
Firstly lets start with something very important. Income Protection is not the same as Payment Protection. They are two very different policies and we will discuss Income Protection first.
Income Protection or Permanent Health Insurance as it it sometimes known is a long term plan designed to replace your income if you are unable to work. You may insure yourself for around 50% of your pre incapacity earnings. It covers you for illness and injury but not redundancy.
You select a ‘deferred period’, which is the length of time that you need to be off ill before the policy start to pay out. deferred periods tend to be either 1,3,6,12 or 24 months, with the longer the period, the lower the premium. Most people tend to synchronise the deferred period with any sick pay period they get from their employer.
The policy is underwritten based on your health, lifestyle and occupation and once accepted with the provider will trigger if you are medically unable to do your job. The policy will start to pay out at the end of the deferred period and will continue to pay out until one of the following three things happens
- You recover and return to work
- You reach the retirement age of the policy, normally 65
- You die
Income protection plans pay out if you are unable to work, however there needs to be a definition of ‘unable to work’ Depending on your occupation, and the options that you choose, the definition of incapacity can be different from plan to plan. The various definitions available are as follows
Own Occupation
Unable to do the tasks of your own occupation as declared on the proposal form.
Any suited occupation
Unable to do any occupation that you may be suited to, even if you are unable to do your own occupation. For example if you are a surgeon and a medical condition means that you are unable to operate, but could take a job as a lecturer or similar then the policy would not pay out. If however the only job that you were capable of doing was that of a janitor then this would not be classed as ‘suitable’ for you and the claim would be paid. ‘Suitable’ can in effect be classed as something that you are ‘trained or experienced to do’
Any occupation
You are unable to do any occupation. This is normally assessed by your inability to complete a set number of tasks, i.e. walk a certain distance unaided, take a simple telephone message etc.
