This is an insurance policy that will pay you a percentage of your income, often until retirement, should you become unable to work due to ill health - usually regardless of the causes.

If this happens to you it will threaten your home unless you are fully covered. Forget state benefits. At the time of writing they're $70 a week (for the first 28 weeks, rising to $90 after a year).

Your employer may offer some type of insurance but you would need to check what it is carefully. No matter how much they may love you it's very unusual to carry on being paid more than 6 months after someone's stopped working because of ill health.

You normally get 50% to 60% of your income from a Permanent Health Insurance pay out and it's inflation proof.

Watch out for:
  • The exact definition of disability used by the insurer i.e. exactly what your being unable to work means. Look for the magic words "own occupation". This means the insurer can't claim that you may have been a PE teacher but, now that you're paralysed, you could work from home sewing mailbags and so they won't pay up...
  • If you see "own OR ANY occupation" watch out. Any occupation means if the ex gym teacher can sew mailbags then hey there are plenty of mailbag sewing jobs about...
  • A policy that can increase its premiums in the future. You need to know what you will be due to pay out in the future and not have premiums increased e.g. when you're getting older and the insurer starts thinking you may be more likely to make a claim...