Permanent Health Insurance is an insurance which may be optional or required in relation to a housing loan. PHI can be arranged as an individual or as part of a group scheme organised by their employer or a trade union. PHI is to provide an alternate income in the event that the individual suffers a loss of income by being unable to work due to sickness or disability lasting longer than the “deferred period”.
This period is typically 26 weeks (although it can be as low as one day or four weeks), so the policy does not pay out until the 26 weeks have passed. The payments are liable for income tax, under the PAYE system, however the policy premiums qualify for income tax relief at the individuals marginal rate, up to a limit of 10% of total income.
The payments could continue until the individual returns to works or the policy cease date is reached, which might be at the age of 60 or 65.
An optional extra usually offer with PHI policies is a “waiver of premium” (wop), this allows the premium on the policy to be waived in the event that the individual is unable to work due to sickness or disability lasting longer than the deferred period. The wop cover only covers the premium, it does not cover the loan repayments.