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What is Permanent Health Insurance (PHI)

Permanent health insurance is a long term income protection insurance policy that provides income replacement over a long period of time, usually until you retire. It covers most illnesses that can render you unfit for work again. The terms PHI and Income Protection insurance are often used interchangeably. However, you should understand the difference between Accident, Sickness and Unemployment (ASU) insurance and Permanent Health Insurance (PHI).

ASU provides cover for a shorter term (1 - 2 years), whereas PHI protects your income until your retirement age (usually 70). As discussed earlier ASU insurance has redundancy cover, whereas PHI does not cover redundancy. You cannot claim on a PHI policy if you receive full sick pay from your employer; proportional amounts may be paid if you only receive half or quarter sick pay. Claims can be made on your Accident and Sickness policy on top of the sick pay received from your employer. The underwriting process of PHI policies are much more rigorous compared to ASU policies. It usually takes longer to set up a PHI policy compared to an ASU policy and due to the need for underwriting may result in higher premiums than first quoted.

Long Term Income Protection versus Life Insurance and Critical Illness Cover

Life insurance is usually the first insurance product that we think of when we have children. For single people with no financial dependents, life insurance is not generally the top of financial planning priorities. However, even if you are single, you will need income protection in case you are unable to work due to accident, sickness or unemployment. Also, it is more likely that one or both parents are unable to work due to accident or sickness rather than death. Income protection insurance is an important financial need, whether you have life insurance or not.

You should note the difference between income protection and critical illness cover. Critical illness cover will make a one-time payment if the policyholder has a serious illness. On the other hand, income protection makes monthly payments if the claim is triggered. As an article published by Financial Times in 2014 stated, Critical Illness Cover is a more popular product category compared to Income Protection in the UK. There are a number of differences between Critical Illness Cover and Income Protection, which you should understand, so that you are able to make the most informed decision.

Critical Illness cover is usually sold as add-ons (riders) to life insurance policies. The cost of Critical Illness cover is usually less than Income Protection policies. Critical Illness claims are triggered when the illness is diagnosed, whereas in the case of Income Protection, if you return to work within the waiting period of the policy, you will not be eligible for a claim. However, Income Protection products like PHI products cover a wider range of conditions compared to Critical Illness Covers. While lump sum payments made by Critical Illness policies (as opposed to monthly pay-outs by Income Protection policies) may appeal to many consumers, we think that Income Protection insurance covers a wider range of financial risks and needs to be properly compared to Critical Illness Cover.

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