Income protection insurance (which is also sometimes known as PHI – permanent health insurance) is a way to ensure that you still receive an income should you become unable to work for a prolonged period of time due to illness or injury.
What you may not be aware of, however, is the incapacity definition on which the plan would pay out. For example, with some income protection policies, the cover will only pay out if you are unable to do any occupation. So, you may no longer be able to carry on in your current role but you may be able to do something else – which means the policy would not pay out.
As income protection is designed to protect you throughout your working life, ensuring your cover will actually pay out should you become unable to work due to injury or illness is important. Income protection insurance specialists have a useful tool on their website (the Occupation Definition Calculator) that allows you to calculate your risk class, so you can make sure you have the most appropriate cover for your occupation.
There are typically three definitions that you may find within a policy:
- Own occupation: this is the highest level of cover which pays out if you become unable to work in your current job. For example, if you are a surgeon who loses some of the feeling in your fingers due to illness or injury and are no longer able to carry out your occupation, the policy will pay out – even if you are fit enough to do a desk job.
- Suited occupation: this cover will pay out if you become unable to do your own job or a similar one that suits your qualifications. So, if you are a qualified surveyor out on site visits and you become unable to do this due to illness or injury, if you can still do something else in the office that is suited to your qualification level, then the policy will not pay out.
- Any occupation: this policy offers you the lowest level of protection and will only pay out if you become too ill to do any kind of paid work. So, using the two examples above, if you could no longer be a surgeon or a surveyor but were able to do something else as paid employment, even if it didn’t suit your qualifications, you would be expected to do this and the cover would not pay out.
Using Drewberry’s Occupation Definition Calculator will enable you to see the most likely type of definition you will be able to get that relates to your occupation. This means that you can choose the protection that gives you the highest level of protection. If you already have income cover, then you can use the calculator to double check your existing policy wording to ensure you have the most appropriate cover.
While it is recommended that anyone taking out income protection chooses the “own occupation” definition, this might not always be possible as some very risky occupations cannot qualify for this definition.
Seeking advice from an independent income protection insurance broker will enable you to get the most appropriate protection depending on your occupation and other risk factors.
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Image by Robin Pronk