Income Protection Plan - advice/comments please!

bowmore-legend

I have been paying into a Friends Provident income protection plan for 6 years now at the rate of £40 pcm. This will pay me £231 per week should I become unable to work through illness or injury. However, I have just discovered that my work has a Unum policy that will pay out 2/3rds of my salary plus my pension contribution should I become unable to work through illness or injury.

My question is - should I keep, ditch or reduce my own plan? My vague thought is that £40 extra each month towards the mortgage may be a better idea.

Comments or thoughts please?

Apologies is this has been previously diuscussed 0 I'm new to the forum.

dunstonh

How long does the UNUM plan pay out for? (UNUM have a lot of budget plans with many restrictions)

bowmore-legend

Hi there. UNUM will pay "while you are incapacitated and your condition will be subject to regular medical review". They will also pay a proportion if you can return to work part-time. There is also no further waiting period (initially 6 months) if you then become unable to work at all due to the same condition. They will pay until retirement I believe but each is assessed on a case-by-case so I wouldn't really find out until it happened. That is all the info I have!

dunstonh

If it goes past the 12 month point then you have overlap and the FP plan is unnecessary.

weighty1_2

Hi Bowmore,

The regular reviews whilst incapacitated are standard practice for income protection plans, as the company needs to assess whether you still fit their definition of incapacity.

Whilst it is difficult to categorically confirm with the limited information you have provided, it would seem somewhat unlikely that you would be able to claim on the Friends Provident plan, !!! they only allow cover up to a maximum of 70% for the first £10k earned, 60% for the next £20k and 50% of the next £120k. Unless you receive significant bonuses/commission/overtime that you would lose out on in the event of being unable to work due to illness/injury then a bit of maths should allow you to work out if you could claim.

One other consideration is whether or not there have been any changes to your health since you took the plan out. Unless you intend to stay with the same employer long term it could be a false economy to cancel it and then find yourself unable to arrang new cover.

As many on hear would say, a good IFA would certianly be able to assist you in the decision making process, but ultimately I suppose it's down to your attitude to the £40/month saving and how well you wish to be protected in the future.

over and out!

bowmore-legend

dunstonh wrote: »

If it goes past the 12 month point then you have overlap and the FP plan is unnecessary.

That's what I figured. I did talk to FP - they were obviously unable to provide me with advice to keep or ditch but they did suggest they would be unlikely to pay out and advised I spoke to an IFA about having two policies.

Many thanks.

kingstreet

Worth bearing in mind, the FP plan is paid directly to you and the benefit is free of income tax.

Group PHI pays the benefit to the employer and he removes tax and NI before paying you your salary as he does now.

Do you intend to remain with your current employer in the long term?

kingstreet

Just remembered another question. Do you have to contribute to your employer's scheme or is it free?

bowmore-legend

kingstreet wrote: »

Worth bearing in mind, the FP plan is paid directly to you and the benefit is free of income tax.

Group PHI pays the benefit to the employer and he removes tax and NI before paying you your salary as he does now.

Do you intend to remain with your current employer in the long term?

Yep - not intending on going anywhere for a very long time - I have too good a work-life balance - I get to work 8-2 and be there when my kids finish school. Also - they do a good benefits package - free UNUM policy, free health insurance (but taxable), free life insurance (4 x annual salary).

Hadn't thought about the tax thing though - need to consider that - but think UNUM would still pay me net more than the FP policy and pay my pension contribution.

I'm beginning to think it's worth ditching the FP and paying the premium off the mortgage instead - just kind of wary of being quite so bold!

kingstreet

bowmore-legend wrote: »

Yep - not intending on going anywhere for a very long time - I have too good a work-life balance - I get to work 8-2 and be there when my kids finish school. Also - they do a good benefits package - free UNUM policy, free health insurance (but taxable), free life insurance (4 x annual salary).

Hadn't thought about the tax thing though - need to consider that - but think UNUM would still pay me net more than the FP policy and pay my pension contribution.

I'm beginning to think it's worth ditching the FP and paying the premium off the mortgage instead - just kind of wary of being quite so bold!

On the face of it, it appears a good idea. The only possible issue is you deciding to leave after you've cancelled your individual policy, then finding you can't get new cover at the same price later.

As you have no plan to leave, it looks sensible.