Ill, but still in need of an income?

If money is tight these days when you are working imagine how you would cope if you are off sick for a prolonged period of time?

If you are self-employed your income will probably stop as soon as you stop working when you are ill or following an accident. Even if you are employed your employer may only continue to pay for the first few weeks of absence.

Although there are still some State benefits available they are becoming more difficult to claim and will not replace all of your income. This is where Income Protection, or Permanent Health Insurance as it used to be called, can help. This type of insurance is designed to replace your salary until you are able to go back to work.

The first thing to decide is how long you can wait before any benefit starts. If, for example, you get six months full pay and six months half pay from your employer you could afford to wait for a year before most of your benefit starts. If, on the other hand, you were not paid at all if you were off sick you would need benefit to start straight away – although most policies have a waiting, or ‘deferred’, period of at least four weeks.

The longer you wait before benefits start, the less the policy will cost you. Other factors which influence the amount you pay include your age and sex – women are likely to pay substantially higher premiums than men since most companies have seen more claims from women (although this may change soon in line with a European Court ruling on equalisation).

Your occupation will obviously be a factor as well. A concert pianist is likely to be harder to insure than an accountant!

Insurance companies will not allow you to insure all of your income. A sore back is difficult to diagnose and is unlikely to get better if someone is paying you all of your salary to sit at home. Somewhere between 50% and 65% of income is normal, although different companies have different definitions of income. Some will allow you to count overtime or bonuses, others won’t.

As with all insurance you should check the small print before you sign anything. Companies define disability in different ways. Some will pay out if you are unable to do your own job – other will only pay if you are unable to do ANY job. Obviously an ‘own’ occupation definition is better, although for some occupations such as a surgeon or a pianist difficult to come by.

Insurance companies will want to see your full health history. If you think something is relevant then you should tell them. It’s pointless paying premiums for years only to discover that your claim is refused because you forgot to tell them something when you completed the application form.