Multiple Income Protection policies

Monty_Zoomer

I posted this question in another forum and they recommended putting it in here so, here goes : -

I have been reading up on the terms and conditions of a couple of income protection policies. These seem like a really good idea in such troubled times.

Only problem is that they pay a percentage of your salary and not it all. Is there a problem with running two policies from different insurer to make up for the shortfall?

I was reading on one that I must declare if there is more than one income protection policy active - came with a stern warning along the lines of - "We will talk to other insurers"

dunstonh

Is there a problem with running two policies from different insurer to make up for the shortfall?

Yes. They wont pay out the amount above the limit set by regulation. You can have as many as you like as long as you dont exceed limits.

TEDDYRUKSPIN

dunstonh wrote: »

Yes. They wont pay out the amount above the limit set by regulation. You can have as many as you like as long as you dont exceed limits.

Dunstonh is brilliant at answering the above questions. This is why I stated on the other forum that it was pointless in purchasing multiple IPP unless it was used to cover a shortfall in the monthly income.

vaio

dunstonh wrote: »

Yes. They wont pay out the amount above the limit set by regulation. You can have as many as you like as long as you dont exceed limits.

I'm confused, can you explain what you mean by "above the limit set by regulation" & "as you dont exceed limits" please

yelf

basically maximum is 65% of your gross earnings. That includes any state benefit. So if you had 2 policies that each paid out 50% of your income: you would only receive 65%.

foggytown

Not really my area of competence but I would suspect that the reasons for the regulatory limit include the fact that you aren't allowed to make a "profit" on your insurance. It's there to put you back in roughly the same position you were in. Also remember that there is no taxation on insurance proceeds as there is on income. Also, if you aren't working, there would be certain "discontinuing expenses" (travel costs, for one) which should be taken into account. So, in the end, getting 65% of your gross salary probably isn't too far off what your net income would be if you were working.

sophievenusdoom

Insurance companies also do not pay out 100% of salary else what incentive would there be to return to work?

sophievenusdoom

Dunstonh is absolutely right. In the event of a claim, if an insurance company were to find out that you had another IP/PHI policy running alongside the one you have with them, they will take this into account when paying the claim.

For argument's sake, if your salary was £100k, and the insurance company only insured up to 50% of salary, this would clearly be an annual benefit of £50k. If you had £25k with one insurer, and £25k with the other, this would be fine, but if you had £40k with one insurer, and £20k with another, the certainty is that the 2nd company would not pay out the full sum assured that you are paying for therefore rendering you overinsured.

Hope this makes sense :-)

magpiecottage

The principle is, as Sophie says, to prevent you from having no incentive to return to work.

There is, as far as I am aware, no explicit statute that says you cannot although you are not allowed to "profit" from an insurance claim.

However, a claim on a privately held policy will be free of Income Tax and National Insurance so the fall on a policy giving the maximum benefit will, in most cases, be small.