Permanent Health Insurance

Introduction

Whilst permanent employees invariably have the benefit of at least 3 months pay in the event of accident or sickness, as a contractor you are exposed to financial loss the first morning that you are unable to arrive on site, fit and ready to work. There are ways that you can protect yourself from hardship.

Policies

You can preserve your current standard of living by setting aside a monthly figure towards permanent health insurance (PHI). These policies will support you financially if you are unable to work and can even maintain your standard of living through to retirement if you suffer a more serious illness or accident.

Policy aspects to consider are:

Deferred Period: The time delay before you are eligible to receive benefits, between 1 day and a year. The longer the period the cheaper the policy. If you have savings to pay your bills over this shorter term then you may choose to take a longer deferred period and have benefits starting after 3 or 6 months.
Protected Amount: You can protect up to 75% of your income. The higher the percentage the higher cost of the policy. Try to be realistic when considering a required figure. Some costs can be cut back, whilst others will be more essential.
Nature of Income: It is vital that the financial advisor/insurance company understands the nature of your income. There are many policies that will pay out solely on salary. Check that dividends are covered if you are outside IR35.
Track record: Check that the company has a good track record of meeting past claims . Delays in or worst still attempts to limit or avoid payments of benefits in the event of a claim are frustrating and very unfair. Ask for evidence/stats of previous payments to clients.
Occupation Type: Ensure the policy will pay out benefits if you are unable to carry out your own occupation. This contrasts to a lesser definition that, if ill the claimant must be unable to carry out any occupation. This is an area that is often overlooked and could be used as a means of making a quote seem more reasonably priced.
Term: Ensure that policies should cover you to your chosen retirement date.
Inflation Proof: It is essential to inflation proof your benefit. £2000 per month will have a fraction of the spending power in 10 years time as it has today.
Premium Payer: Either paid personally or via your Ltd company. If paid personally then benefits are tax free. If via your company the benefits enter the company tax free but you pay tax and national insurance on any salary drawn. Paying into the company can help ensure executive pension premiums are maintained in ill health.