A healthy outlook

Becoming incapable of work due to ill-health can devastate your standard of living.

Medical evidence shows that we all have a one in six chance of suffering a period of incapacity longer than six months during our working life. In view of the fact that few employers guarantee sick pay beyond a few months, it is hard to believe that 90 per cent of the working population have not protected their income against such a possibility.

One way of preventing your wealth as well as your health being affected should a sudden injury or illness leave you unable to earn for a long period is permanent health insurance (PHI), which replaces a percentage of lost earnings with a monthly tax-free income. Most policies will continue to pay out until retirement if you never work again.

Oonagh O'Driscoll, marketing manager of Zurich Life, puts PHI cover into wider context: "Mortgages, investments, food and holidays have one thing in common - they rely on your pay cheque to finance them. What happens if that disappears because you have an illness or injury preventing you from working for one or more years? Your standard of life could end up collapsing around you."

Under the new and stricter incapacity benefit which replaced invalidity benefit, benefit is lower and taxed, no longer related to earnings and your eligibility is assessed by an independent board. If they consider you are able to work, you have to stop claiming sickness benefit and join the job queue where you can apply for alternative, lower-paid jobs, doing work that can be managed in your current state of health. In theory, it could involve a solicitor having to become a car park attendant.

Another problem for PHI is that many people with critical illness cover think that it does the same job. However, while critical illness provides a one-off lump sum PHI will pay out during your period off work. PHI providers include Zurich Life, Guardian Financial Services, Bupa, Swiss Life and Scottish Amicable. Plans allow you to choose a percentage of the income you want to cover and the deferment period you want before payment is triggered. For example, with Swiss Life's plan, a man aged 30 in a white- collar job earning pounds 25,000 and wishing to protect 65 per cent of his earnings for 30 years would pay pounds 17.10 a month for benefits kicking in after 26 weeks. One important point to check is the company's definition of occupation. There are four types in use and ideally you should choose a plan that pays if you cannot carry on your own job rather than any work. Most companies limit this to two years, after which the plan reverts to "any occupation".

Other types of cover - which cost less - limit benefits paid to between two and five years. However, Michael Royde, an independent financial adviser in London, argues: "I am inclined to advise my clients to look for long- term protection. If they are looking for short-term benefits, they could be better off with critical illness policies."

While many people recognise the need for life assurance, you have more chance of being off work ill or injured for a long period than dying prematurely. Is it worth risking your standard of living against such a possibility?

Finally, it is worth remembering last week's argument, that demand for NHS treatment has always placed considerable strain on the available resources to deliver it, with the result that waiting lists continue to be a feature of life for non-acute medical conditions. Consequently, people not in company health schemes can bypass the NHS by taking out private medical insurance (PMI)

With consumers focusing on price, a number of new budget plans have been launched recently, which provide the core benefits at lower premiums than the comprehensive variety. Recognising the need to provide greater clarity for consumers over what cover PMI policies provide, Prime Health is currently promoting an industry-wide "keep it simple" approach to medical insurance.

An example is Prime Health's two new plans which cut premiums by reducing the comprehensive cover of its main Primecare plan. Known as Primecare Saver and SuperSaver, they offer full cover for eligible in-patient treatment, out-patient tests, consultations and day-care surgery. Premiums start at pounds 16 for single cover and pounds 40 for a full family. Cover which is excluded includes alternative medicine and home nursingn

Swiss Life 0345 228866; Zurich Life 0345 445505; Bupa 0800 600 500 ref 8891; Michael Royde 0171 792 3700; Prime Health, 0800 779955