Money: Laid up? Hope you've paid up

When the worst happens, permanent health insurance could keep you off the breadline, says Tony Bonsignore

What would your family do if the main breadwinner was unable to work because of long-term illness or injury? Would you be able to keep paying all the bills while making sure there is enough food on the table?

Many people assume that, in this situation, the government and their employer would come to their rescue. However, while true for a lucky few, the reality is that most of us would get little help if we were too ill to work.

Nick Lomas, marketing manager at Unum, a health insurer, says: "People realise that it makes sense to insure their house and car, but they don't insure their pay cheque."

A permanent health insurance (PHI) policy - also known as income protection cover - will pay out a large part of your income if you are unable to work because of illness or serious injury.

Some people will already have their own PHI policy without knowing it. Some companies buy "group" schemes for their employees. But many people, including the self-employed and the lower paid, will have no employer- sponsored PHI cover at all. A lot of employers' schemes are also very basic.

A typical individual PHI policy guarantees to pay anything between 40 and 75 per cent of the income you were receiving at the time you stopped work. Payments are tax-free and will usually continue until you retire or are able to return to work.

Superficially, costs may not seem that unreasonable. For example, a policy promising to pay out pounds 400 a week for a 30 year old non-smoking male will cost anywhere between pounds 5 and pounds 10 a month.

Premiums differ according to your age, health and occupation. Office workers are considered to be a low risk and will get the cheapest cover, while manual workers such as bricklayers pay the most, around twice as much as a desk-bound worker.

There are other catches. Almost all policies do not pay out for the first 13 weeks of your illness. Some policies will deduct any state benefit you receive from your payments. Meanwhile some schemes also offer additional payments such as hospitalisation and rehabilitation benefits. All these details need to be checked before you sign up.

Indeed given such complications, it may be best to seek advice from a independent financial adviser.