What is Income Replacement Insurance?

Income replacement insurance provides an income should you be prevented from working due to sickness or injury. It is commonly known as permanent health insurance or sometimes PHI schemes. The word "permanent" in the name, refers to fact that the policyholder is the only person who can stop the cover during the term of the policy (this would be through the none- payment of premiums or cancelling the policy directly.) The insurance company cannot withdraw cover, under any other circumstance, once the contract has been accepted and premiums have commenced.

These plans work by paying you an income, usually equivalent to 50 - 65% of your usual salary, if you are unable to work for a long period. The income is generally paid until you reach your usual retirement age but will automatically ceases if you return to work prior to this point.

If you are self-employed then the benefits under the plan are calculated based on the amount of your taxable income, normally for the 12 months before you became unable to work.

Care should be taken to check what the insurance company means by disability. As a general rule it is better to consider a plan that pays the benefit if you are unable to carry out your usual occupation. This type of cover is referred to as 'own occupation'. Some plans will only pay a benefit if you are so sick or disabled that you cannot work at all. You should take into account that it is far less likely you will be unable to do any work than you are unable to continue your usual occupation.

The income from a PHI plan or scheme is tax free (hence the restriction to 50 - 65% of your usual income ), but you do need to be aware that any income you receive may have an impact on any state incapacity benefit that you wish to claim. There can also be situations where if you are receiving income from other sources, during the period of your sickness or injury, the benefits under you plan could be scaled back. A good example is where you are forced to retire early from your usual occupation and start receiving an ill health early retirement pension. In such instances the Insurance Company may scale back the benefits under your PHI plan.

Guide to Private Medical Insurance

What is it?

Private Medical Insurance (PMI) cover provides you with the option of private medical care in addition to the care provided by the National Health Service.

You (or your employers) pay monthly or annual premiums, the cost of which is determined by your personal circumstances (e.g. sex, age, previous medical history) and the type of cover you choose. Premiums are reviewed each year.

Note that private medical care does not offer the same range of treatments that the NHS does. It does not provide emergency treatment, or care for a long term condition. Its aim is to provide care for straightforward, treatable conditions.

You can change PMI provider as you wish, but bear in mind that you will need to complete a medical questionnaire each time, and possibly attend a medical examination.

If your employer is paying your premiums, note that this is counted as a benefit in kind (P11D), and you will be taxed on the value of this benefit at your highest marginal rate.

Guide to Hospital Cash Plans

What are Hospital Cash Plans?

Hospital cash plans pay a given amount of money if you are required to stay in hospital for any of a number of given reasons. The main idea behind these plans is to provide cover for day-to-day living expenses of yourself or your family, or to cover additional expenses such as childcare, travelling or accommodation costs. Some plans may also pay out up to a given limit for certain types of medical treatment.

Cash plans will not provide cover in respect of a pre-existing illnesses.

Any money paid out as the result of a claim under a cash plan is normally paid tax-free.

Guide to Life Insurance

What is Life Assurance?

Most of us have heard of Life Assurance and appreciate that it is a policy provided by a Life Assurance company, that pays out either a lump sum or a series of payments if or when you die. These payments are normally paid without the deduction of any tax, and in most instances are actually tax-free.

The proceeds of a Life Assurance policy can used:

to pay off a debt such as a mortgage
to provide an income for your dependents
as a savings scheme.
You pay monthly premiums or an annual sum to the Life Assurance company for either a given time span or in the case of Whole of Life Assurance normally through to until death (some Whole of Life policies have a maximum age limit on premiums).

Life insurance policies can be combined with other forms of insurance, such as Critical Illness insurance so that you receive the lump sum if you are diagnosed with a serious illness.

Guide to Critical Illness Insurance

What is Critical Illness Insurance?

The name of this type of Insurance cover can be slightly misleading and it would probably be better described as Serious Illness Insurance. It is often possible to claim on the policy even if you were to contract an illness that is not immediately life threatening.