Income Protection Insurance (IPI)
Also known as Permanent Health Insurance, IPI is a health insurance policy designed to provide an income when the policyholder is incapacitated and unable to work and earn a living due to ill health or accident. IPI provides a regular income (weekly or monthly) to replace that which the insured may no longer be able to earn. IPI does not cover redundancy or unemployment.
IPI typically has the following features:
- Payment is made after the individual has been off work for a specified period (called deferred period) which is usually 4, 13, 26, 28 or 52 weeks. The deferral period is set on the onset and the longer it is the cheaper the premium.
- Maximum benefit is limited to 50-60% of income. There may also be an upper cash limit too. Horsepersons and others with no paid income may be able to insure for a smaller amount e.g. £12,000 a year.
- Benefits are not taxable and the premiums do not qualify for tax relief,
- Benefits payout continue until the earlier of:
- The insured returning to work (if they return to a part time or lower paid job, benefits are usually reduced proportionately)
- The end of the policy term,
- the insured reaches statutory retirement age; or
- the insured’s death.
IPI Compared To Critical Illness Cover (CIC)
CIC advantages over IPI:
- No deferred period, it is paid out on diagnosis of the critical illness
- Benefits payout is not depended on the insured being unable to work,
- The benefit payout can be more flexible as it comes as lump sum
IPI advantages over CIC:
- The cover provided by IPI is considerably wider. CIC does not cover a number of conditions, most notable of which are mostly mental illness – a major cause of incapacity – and musculoskeletal conditions, such as backache,
- IPI is more attuned to income needs. A long-term incapacity could involve a very substantial payout over many years, especially if index-linked.
IPI Compared To MPPI
- IPI is a long-term insurance and the maximum benefit payout period is longer,
- IPI benefit is potentially a lot higher,
- IPI has more rigorous medical underwriting, and
IPI does not include redundancy or unemployment cover,