What is it?
This is also known as Income Protection. It's a type of nsurance policy that pays you a percentage of your income, often until retirement, should you become unable to work owing to ill health.
If this happens to you it will threaten your standard of living not to mention mortgage payments - unless you've got a seperate cover for this.
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Why bother?
You can't rely on state benefits any more. They're about �50 a week (for the first 28 weeks, rising to �67 after a year).
Your employer might offer some kind of insurance cover for you, but you would need to check carefully what it is.
While many employers may be sympathetic and continue paying their staff, it's very unusual to carry on paying a salary for more than 6 months after someone's stopped working because of ill health.
You normally get 50% to 60% of your income from a Permanent Health Insurance pay out.
The pay outs would be inflation proof.
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Summary of typical policy
You get pay outs until you recover, or the termination date of the policy.
You don't have to pay income tax on the replacement income.
Your pay outs should be able to be paid anywhere in the world ie it's world-wide cover for UK residents.
There are usually no exclusions - other than HIV/Aids.
You can get discounts of up to 20% on the premiums for certain occupations.
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Permanent Health Insurance Buying Tips
You need to watch out for...
- Exactly what the definition of disability
used by the insurer is. In other words what exactly does
your being unable to work means.
- You don't want the insurer to claim that you may have
been a PE teacher but, now that you're paralysed, you
could work from home sewing mailbags so they won't pay
up.
- Look for the magic words "own occupation".
this means unless you can get a job again as a PE teacher,
you are eligible for the payouts.
- Beware the phrase "own OR ANY occupation".
- "Any occupation" means if the ex gym teacher can sew
mailbags then the insurer will say they should get a mailbag
sewing job, ie they'll dispute the gym teacher's inability
to work.
- Avoid policies where the premiums
can be increased in the future.
- You need to know what you will be due to pay out in
the future and not have premiums
rising, for example, as you get older and the
insurer starts thinking you may be more likely to make
a claim...
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