Missold Income Protection?

koenig

5 yrs ago I took out 2 income protection policies. The 1st would payout after 6 months of being unable to work, when my pay dropped to 50%, the 2nd after 12 months when my pay stopped completely. However, after speaking to the company I have the insurance with, they said they would not payout the 1st policy until my pay stopped completely after 12 months; as the law states you can only receive 50% of your normal income when income protection is being paid out. If the 1st policy was paid after 6 months, I would be receiving almost 75% of my normal salary.

My main question is have I been missold these income protection policies by the IFA I used to arrange them ?

Would the IFA have gained more commission from selling 2 policies instead of 1 ? I'm sure the monthy amount would be less for 1 policy as I have had quote from another IFA which is £9 cheaper per month from the same insurance company, for a similar benefit amount.

Thanks

ACG

Im not sure if you have misunderstood or if you have been given the wrong info.

Lets say your on £1000 a month.
The first 6 months of being ill you get £1000 a month as normal.
Month 6-12 you only get £500 a month. Depending on the insurance company they can usually offer UPTO 70% (although usually closer to 60-65%), this means that your insurance company should/could start paying out between £100-200 a month.
Month 12 onwards - you get nothing from your employer - your insurance company would pay out the £100-200 it has been doing, plus the other £500 (or thereabouts).

I hope this helps a little bit. But the law does not state you ca only have 50% of your income on IP. Im not sure what the figure is, but some companies do pay out 70% and 75% if your self employed.

dunstonh

My main question is have I been missold these income protection policies by the IFA I used to arrange them ?

No. It seems to be set up correctly.

Would the IFA have gained more commission from selling 2 policies instead of 1 ?

No. Split plans are very common and the correct way to do it.

I'm sure the monthy amount would be less for 1 policy as I have had quote from another IFA which is £9 cheaper per month from the same insurance company, for a similar benefit amount.

Maybe the other IFA is taking reduced commission to lower the premium. Or maybe they are not comparing like for like (budget, standard or comprehensive levels exist within companies). Or maybe the terms are slightly different.

But the law does not state you ca only have 50% of your income on IP. Im not sure what the figure is, but some companies do pay out 70% and 75% if your self employed.

It used to be 75% of average monthly earnings in the year before disablement, minus state benefits and benefits from any other disability insurance. But now PHI benefits are tax-free, the usual maximum benefit is between 50% and 60% of a claimant's gross salary, plus state benefits.

With it being tax free, you are not paying NI and tax on it so its a figure that is very similar to the net income you would have got from the company.