Financial Services > Protection > Income Replacement


This type of policy used to be known as Permanent Health Insurance. Whilst this title had the merit of conveying the long term nature of the policy, it was felt this gave the impression that if someone took out the insurance, they would be guaranteed to always have good health - obviously the wrong impression, so the title was changed to Income Replacement.

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These policies provide a weekly or monthly benefit if you should find yourself unable to work through accident or illness.

Unlike an accident and sickness policy though, these are long term contracts designed to carry on paying benefits usually until your chosen retirement date.

The policy can be extended to include not only a replacement income for you, but also pension contributions that would have been made by your employer had you been at work. It is possible to include a provision for the benefit to increase each year, either at a fixed rate or in line with inflation, and the premiums will change at the same pace.

The scope of cover and premium can only be changed from those agreed when the policy begins if you change your job; this does not mean from one employer to another but the nature of work that you do.

When this type of insurance is bought by you personally, the benefits are tax-free - but if your employer provides this benefit then the payments will be subject to Income Tax and National Insurance in the same way that normal salary payments are.