Formerly known as Permanent health insurance (PHI), Income Protection Insurance (IPI) is an insurance policy which is principally available in the United Kingdom, Ireland, Australia, New Zealand and South Africa (more information about income protection). It is an insurance policy which pays benefits to policyholders who are incapacitated and therefore unable to work due to illness or injury caused by an accident.
Income Protection Insurance normally pays out until retirement, death or your return to work. However, you can get a short-term income protection insurance plan which is available at a lower-cost, but does not cover you for life. A short-term income protection insurance plan is best for those who will only be out of work because of a brief illness or a temporary injury that needs some time to heal, but is not fully life changing.
Neither long term income insurance protection or short-term income insurance protection will pay out if you are unfortunately made redundant. Nevertheless, they will often provide you with a kind of ‘back to work’ help if you are off sick for any reason.
There is also a degree of crossover between IPI and Critical Illness Insurance and this should be discussed with your financial adviser or broker prior to arranging a policy and any subsequently required pay-out.