Income Protection or Permanent Health Insurance as it is sometimes known is cover that is designed to pay a regular tax free benefit after a pre-agreed deferred period until an agreed ceasing age while you are unable to work as a result of an accident or illness.

A major benefit to you is that once accepted, insurers are unable to cancel cover regardless of the number of claims made. This is potentially a substantial liability for insurers and acceptance does depend on a satisfactory medical history.

How much cover can I have?
Insurers tend to limit the benefit you can receive to an amount lower than your normal earnings. This is because benefits are tax-free and insurers require an incentive to encourage you to return to work. You also need to consider what state benefits are available and if you have any other sources of income such as savings. Also, if you are employed you need to understand what provisions your employer may have in place. Some employers may only pay statutory sick pay; others may be more generous.

What are the main factors that will affect my premium?
The total cost of a policy is obviously an important factor to fit within your budget. The exact cost will depend on your age, whether or not you smoke, your sex, your occupation and your medical history.

In addition, you may be able to select a longer deferred period to reduce your premium. i.e. the period following a claim before any benefits become payable. If you are employed this should be tied in to any sick pay entitlement you may have. You should also think about how long you wish for your cover to last - some people choose up until retirement date. However, the longer the term, the higher the premium tends to be.

Other factors to consider -

Guaranteed v Reviewable Premiums - Reviewable premiums tend to be cheaper at the commencement of the cover but insurers have the right to alter the premiums in lines with their claims history. Over a policy with a lengthy term, guaranteed premiums may prove to be cheaper.

Indexation - You may wish to have a policy where the benefits increase in line with inflation. The extra cost of this changes from insurer to insurer and premiums will increase over the years as the level of cover increases.

Career Breaks - If you are planning a family or planning to go travelling you may wish to consider a policy that will allow for such an event without any penalties.

All of the above are typical examples of the issues that need to be considered. That is why it is vital you obtain specialist advice from people who will take the time to understand your circumstances. Click here to obtain advice and quotations.

*Source - National Statistics Online