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 a personalised solution, call our experts on the Which? Money Helpline
- Take a look at our income protection reviews
- Take a look at our expert guide, Redundancy: Your Rights
