This plan is designed to pay you a tax-free income for the periods that you are unable to work due to illness or injury. Unlike critical illness protection, which covers serious illness only, it will pay out on injury, serious illness or any other illness that legitimately keeps you off work. There is generally no limit on the number of periods you can claim and if you are off work permanently it will carry on paying you an income until your chosen termination date, which is usually your normal retirement date.
You would normally have a deferment period commencing from when you are off work until the income payments commence e.g. 4 weeks, 6 months etc. The longer the deferment period, the lower the monthly cost to you. The deferment period is generally based on the period you receive sick pay from your employer, as the policy starts to pay out only when this ceases. For the self-employed you will receive no employer sick pay so you may wish to opt for the minimum deferment period.
The maximum cover is based upon a percentage of your gross income – often about 60%, because the benefit is tax free and will roughly be equivalent to your take-home pay. You can opt for lower a amount of income if you wish.
*These types of plan will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.