Understanding protection insurance Types of protection insurance
| Protecting your income | |||
|---|---|---|---|
| Policy type | What it is | Pros | Cons |
| Income protection (IP), also known as permanent health insurance (PHI) | IP replaces 50-65% of lost earnings if you are off work due to sickness, accident or injury. Policies start to pay out after a number of weeks' illness (the deferred period). | You can choose a deferred period from 4 to 52 weeks (longer periods are cheaper). Most policies run until your retirement date. Costs are lower for people in good health in office-based jobs. | Women pay more than men. State benefits and/or sick pay from an employer may be reduced if you have a private IP policy. Insurers can cut the amount you get from an IP policy if your total income exceeds a maximum level. |
| Mortgage payment protection insurance (MPPI) | MPPI pays out an amount equivalent to your monthly mortgage payment if you can't work because of accident, sickness or redundancy. Benefit is usually paid for 12 months. | An MPPI policy won't affect your state benefits. It may be cheaper for older people or those with health problems because plans are not individually underwritten. | Policies have many exclusions - for example, you're not covered for existing medical conditions. Policies might reduce what you get from your employer's insurance. Income protection is nearly always a better option. |
| Critical illness cover (CIC) | Pays a lump sum if you get a serious or illness, such as cancer, or if you have a heart attack or stroke. A luxury, not core, product that should be bought only in addition to income protection cover. | Can be used to pay off a large debt, such as a mortgage. Very cheap for younger people. Plans can be written so that cover remains level or reduces over time in line with a mortgage. | Only pays out for serious illness, not accident or injury. Very expensive for older people, those with health issues or smokers. Often sold without advisers undertaking a full review of your insurance needs. |
| Payment protection insurance (PPI) | Covers the cost of personal loan repayments or minimum monthly credit card payments if you are too ill to work or are made redundant. | There are no obvious benefits with this insurance. | Policies are full of exclusions and are very poor value. Often sold inappropriately to people who already have better cover in place. |
Table notes
The example premiums given in this report were obtained from a selection of some of the larger insurers but not from the whole market.
- For regular money updates, subscribe to the Which? money advice RSS feed here. If you have an older web browser you may need to copy and paste this link into your newsreader: http://www.which.co.uk/feeds/advice/money.xml. Find out more about RSS in the Which? guide to news feeds.