Income continuance, which is also known as income protection or permanent health insurance (PHI), provides a replacement income to people who cannot work due to a long-term illness or disability.

The benefit is usually payable after a deferred period of either 13, 26 or 52 weeks and will continue until the person is judged fit to return to work or until retirement age.

The monthly payments are limited to a proportion of the normal income, usually either 66 per cent or 75 per cent, less any social welfare entitlements. The income is taxable.

Tax relief applies to the premiums paid by individuals - normally self-employed people - who buy their own income protection policies and in the case of certain approved employer schemes.

According to pensions ombudsman Paul Kenny, unapproved employer-sponsored schemes are set up so that the employer is the direct beneficiary of the insurance policy in order to avoid a benefit-in-kind (BIK) tax charge.

In an employer-arranged scheme, where the contract is between the employer and the insurance company, the insurer's payout may not match the benefit that is passed on to the employee.

Payouts are at the discretion of the insurance company, according to Watson Wyatt managing consultant Ray McKenna. The insurer may assess at regular intervals whether or not the individual is entitled to the benefit.

Self-employed people in certain occupations - such as electricians, chefs and taxi drivers - can find it difficult to secure income protection or be quoted higher premiums.

Some policies will only pay out if people are unable to carry out "any occupation" not simply if they are unable to perform the job they had before the accident or illness.