Reader Question: What is the difference between income protection and health insurance?
Hi, I was looking for some cover in case I become ill as I am the main bread winner. I've seen a lot of terms banded about such as income protection insurance as well as health insurance. But what is the difference between income protection and health insurance, as I thought they were pretty much the same thing? If you could shed any light that would be great!
Hi Daniel, you are not the first and certainly won't be the last person with this question. So below I've pulled together a round of what each type of policy does and when someone might need them. I hope it helps.
What is income protection insurance?
- income protection is designed to provide an income if the the policyholder is unable to work due to sickness, or as a result of an accident
- benefits will be paid until the policyholder returns to work or retires or reaches the end of the policy term, which ever happens first
- benefits will only commence once a pre-agreed deferred period has passed, this is generally between 1 and 12 months, the longer the deferred period the lower the premium
- income protection insurance is a long term policy with monthly premiums
- the amount of income covered is often 60-65% of the policyholder's monthly income normally
- any benefits are received tax free unless cover is provided free by an employer
- pre-existing conditions are not covered under an income protection policy
Why do I need income protection insurance?
- if you only receive your full pay for a limited period of time when off work
- to make sure your basic living expenses are covered whilst off work
- if you receive only statutory sick pay when off work
What is health insurance?
- also known as private medical insurance or PMI
- pays for medical treatment either in a private hospital or as a private patient in a NHS hospital
- does not cover normal GP services
- cover for pre-existing conditions may be restricted or excluded by the terms of the policy
- premiums are paid monthly and may be supplied by an employer as an employee benefit
- premiums may be increased or certain conditions or restrictions applied
- there may be limits to the amount covered for some treatments and hospital stays
- in normal circumstance patients are referred by their GP and can then get immediate treatment, avoiding any waiting time
- does not normally support ongoing check ups following initial treatment
Why do I need health insurance?
- everyone already gets free treatment under the NHS so health insurance cover is not essential
- health insurance will allow you to get immediate treatment for any illness
- you may also get to the latest treatments and drugs which are not available under the NHS due to cost restrictions
- you can choose the surgeon and hospital where you are treated from the insurer's approved list
- some critical conditions will have to be treated under the NHS as not all private hospitals can accommodate them