This type of plan is designed to pay a regular sum to replace lost income. When purchased privately it is known as an Income Protection Policy (IPP) or Permanent Health Insurance (PHI). Loss of income can occur when someone cannot work as a result of sickness or injury. It is not usual for PHI plans to include a death benefit although unit linked plans can provide a small amount of life cover.
PHI plans insure your health rather than your life. Whereas critical illness plans pay a capital sum on the occurrence of certain specified medical conditions, PHI plans pay the income benefit following any illness or injury that is not specifically excluded.
The word ‘permanent’ is a little misleading. It means that the life office, regardless of the duration and frequency of any claims cannot cancel the plan if the plan owner is paying the contributions. The period of protection normally lasts for your working life and finishes at age 60 or 65, i.e. they are not whole of life plans.
The life office accepts a considerable risk when it issues a PHI plan as the scope of cover is so far reaching.
Even though only a proportion of your income can be protected (e.g. 60%), the sums of money involved for policies in payment over a number of years often amount to far more than the total of conventional life assurance.
There are a vast number of illnesses and injuries, which prevent people from working. Complaints, which would not result in a claim on a critical illness or life assurance plan, (stress and bad backs for example) could result in a claim on a PHI plan. On the basis that many life offices also offer index linked income benefits, it is no surprise that non-standard terms are more common on these plans.