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There are several ways to protect your income from accident, illness and involuntary unemployment. Here are the pros, cons and smallprint pitfalls!

There are three similar types of insurance for protecting your income, or debt repayments, when you are off work due to accident, illness or involuntary unemployment (e.g. redundancy or your business closing down). It's easy to mix up these policies, especially because they sometimes share the same name!

So here's a comparison of them.

1. Permanent health insurance (PHI)

When you have an accident or illness, permanent health insurance (PHI) can pay out a sum of money every month for as long as you are unable to work, right up till you retire.

This insurance is not to be confused with health insurance (which is also otherwise known as 'private medical insurance'), which pays for private medical treatment.

To add to the confusion, PHI is often called 'income protection insurance' (IP, or IPI), but there is a different kind of insurance that is also sometimes called 'IP' and that is accident, sickness and unemployment insurance. (See 2.)

I hope that's clear. Now back to PHI. Here are some important facts (based on typical policies):

• You can claim as many times as you like.
• Self employed people can get cover under many policies (although pay particular attention to the small print).
• You can't claim whilst you're receiving sick pay from your employer.
• You can claim on some policies after just one day of sickness. Many policies defer payment for one to three months, although you can often get 'back-to-day one' cover, which means that the insurer will still pay you for those initial months, but it'll just pay you late.
• You can get a premium that is fixed until you cancel the policy or retire, or you can get a premium fixed for, say, five years. Or you can get one that constantly goes up as you get older.
• Unlike the other two insurances in this article, PHI is fully underwritten. This means that medical information and possibly tests are usually required.
• Many providers give you a choice of three levels of cover. You can choose to be able to claim when you are:

Option One: unable to do your own job
Option Two: unable to do your own job or a similar one for which you are qualified
Option Three: unable to do any kind of paid work

Option One gives you better cover than Two (because you're more easily able to claim), and Two more than Three. As you'd expect, the better the cover, the more expensive.

Personally, I think that the third option leaves too much scope for dodginess. Virtually anyone can somehow do some sort of work, so insurers have quite a bit of scope for declining such claims.

On the other hand, for many people, if you're unable to do your own job then you're not likely to be able to do a similar one for which you're qualified. So it may be that those people should consider the cheaper Option Two, rather than pay for the top-notch Option One.

This insurance has a good reputation and we like it at The Fool. However, you must carefully read the small print to ensure it is suitable for you!

2. Accident, sickness and unemployment (ASU)

Unlike PHI, accident, sickness and unemployment insurance (ASU) can pay out if you're made redundant or if your business closes, as well as if you have an accident or illness.

It will pay out every month for up to 12 (or occasionally 24) months. This is considerably less benefit than PHI which, if you remember, will pay out indefinitely.

Here are some facts about it:

• Some policies allow you to choose whether you can just claim for accident and illness, making redundancy optional, or vice versa. This is handy, because it can reduce the cost of the policy. Furthermore, many people would find it hard to claim for the latter, because the terms and exclusions can be troublesome. Therefore you may not be willing to pay for it in any case.
• Some policies give cover for self-employed people, too. However, it can be very hard to make a successful claim.
• ASU policies won't pay out from day one. There is a deferred period of 30 to 90 days, or sometimes more. However, you can get 'back-to-day one' cover.
• You can usually make more than one claim in a year, but the T&Cs can be dodgy here. To take an example, many policies say that, if you claim for two different redundancies twice within six months, this will count as one claim, meaning that you'll get a maximum of 12 months-worth of payouts for both claims combined.
• Premiums go up as you get older for this insurance.

3. Payment protection insurance (PPI)

It's likely that you have this form of insurance and you've forgotten all about it. Payment protection insurance (PPI) protects your payments on your mortgage, personal loan or credit card. You usually buy it directly from your lender when you take out one of those products.

Like ASU (and unlike PHI), payments last just one or at most two years.

PPI is a form of accident, sickness and unemployment cover. This can be confusing, as it is sometimes simply called 'ASU', rather than the more specific 'PPI'.) PPI also comes disguised as credit-card repayment protection (CCRP), personal loan protection (PLP) and mortgage payment protection insurance (MPPI).

Here are the key facts of a typical policy:

• Rather than protecting your salary by paying into your bank account when you claim, PPI protects payments to a specified loan, credit card or mortgage by paying the bill directly.
• Often just the minimum payment is made, or even just the interest owed that month, so the debt doesn't go down.
• You can claim just once with most PPI policies.
• Just like ASU, your claim is deferred for one to three months, or even more. Once again, you can get 'back-to-day one' cover, but this is harder to find.
• You don't have to buy PPI from your mortgage company, credit-card company or personal-loan provider. You can get much much cheaper cover if you buy it from a stand-alone provider. Not only do they usually charge 70%-90% less(!), but their terms are often better, too.
• Some PPI will clear the debt if you die.

There's nothing wrong with PPI as a type of insurance, provided you read the small print and understand the vast number of exclusions that prevent you from claiming, and the terms that delay your benefits. Sadly, most people don't and this frequently leads to disappointed claimants (and smug insurers).

Rather than buying PPI, you might consider a combination of other insurances. Permanent health insurance combined with unemployment insurance, for example, might give you much greater cover for the same amount of money or less.

You may also consider getting a decent amount of life insurance, which is cheap, infinitely less complicated, and will likely pay out to your dependents far more than the value of your outstanding debts.

The insurances you buy depend on how at risk you think you are and how much protection you feel you need. The price of the insurance is important too. Many Fools self-insure for some things by growing a decent-sized savings pot.

Summary of these protection insurances

*Normally. Policies do vary.

Looking at the last row of the table, and considering how the names overlap, you should ensure that the insurance policy you're considering is the one you actually intended to buy.

About all these insurances

I can't repeat enough that exclusions vary so do read and understand the small print, and what it means for you. If you're struggling to understand the consequences of a contract, ask our Legal Fools. There are many in our community who are willing to help with these things.

Finally, here are some typical examples of small print to watch out for:

• You may not be able to claim for the first 60-90 days.
• To claim for incapacity you may have to produce a monthly doctor's certificate. The claim will probably start from the first day the doc says you can't work. You must also be claiming statutory sick pay.
• Sometimes mental illness and backache/injuries are excluded. If they aren't, expect to have to provide strong medical evidence about what the condition is.
• Also, complications from pregnancy, childbirth or similar are not normally covered.
• If you're claiming for redundancy, you must have been in continuous employment for 6 months (normally) before you can claim. Also, you must register for the jobseekers' allowance as soon as possible after becoming unemployed. Furthermore, you must be on the allowance for a set period before they'll pay. Remember that, if you take a long holiday, for example, it'll reset the allowance period. You must also continue to provide monthly evidence that you're receiving the allowance.
• If you're self-employed you must claim the jobseekers' allowance as soon as possible after your business permanently ceased trading. The business must be closed at Companies House or put in the hands of an insolvency practitioner. Read carefully for other exclusions and terms!
• Contract workers need to read the small print carefully too, although they still may be able to benefit from these insurances. 
• If you receive redundancy money this might be counted as salary, so a three-month payoff will mean you can't begin your claim for three months...and then there may be a three month deferment period, too.
• And so on! Read the small print.

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The comments above are the opinions of the author only and do not represent advice specific to your circumstances.

This article has been approved and issued by Direct Life & Pension Ltd who are authorised and regulated by the Financial Services Authority.

The Motley Fool Insurance Service and The Motley Fool Life Insurance is a trading style of The Motley Fool Limited. The Motley Fool Life Insurance is provided and administered by Direct Life & Pension Services Limited. The Motley Fool Limited is an introducer appointed representative of Direct Life & Pension Services Limited, who are authorised and regulated by the Financial Services Authority. Registered office: Pinnacle House, A1 Barnet Way, Borehamwood, Hertfordshire WD6 2XX.