Glossary: Permanent health insurance
PHI – now commonly referred to as income protection insurance - pays a regular income if you are unable to work due to long-term sickness or disability and is called “permanent” because the insurer may not cancel the policy no matter how often you claim. It does not cover redundancy, but you could buy it as a bolt-on. The tax-free benefit is payable until recovery or until a specified date (whichever is earlier), but is subject to a deferred period which should take account of any benefits provided by the employer. PHI should not be mistaken for PMI (private medical insurance); a completely different form of health insurance that covers the costs of private medical treatment, not the possibility of you becoming ill and being unable to work as a result.
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
Income protection insurance
If you can’t work in the event of sickness or illness, income protection insurance aims to give you an income, with the amount of income set by you up to 75% of your gross (before tax) income with the premiums varying by how much of your salary you want to cover, as well as your age and health and when you want to start receive any payouts. Any payouts from income protection insurance are tax-free and usually continue until you recover, reach your selected pension age or the period of cover specified in the policy comes to an end. Income protection insurance does not cover redundancy but you can buy it as a bolt-on.