Income Protection & Mortgage Protection

wigannwuk

Just a thought thats popped in my head....so ive not really looked into as of yet but can you have an Income Protection policy and a Mortgage Protection policy in place at the same time ( not necessarily from the same company)?
Im not in any immediate danger of unemployment but im considering my options as we are expecting a rough year at work.

lisyloo

You can, but there is a legal limit (I believe it's 75% of income).
I believe the reason for the limit is that if people were better off on the sick then some would be reluctant to return to work.
There is no point exceeding this limit.
This is one of the things that an advisor would tell you (and if they got it wrong you could get compensation), so I would recommend seeing an IFA as they know all these things (and there are plenty more issues).

Personally I have always gone for one policy to replace income.
If the income is covered then you should have enough to pay mortgage/pension/mobile phone.
It's always been intuitive to me that this would be cheaper/better than lots of individual polciies.

Work out your redundancy/sickness package before deciding what you need and make sure you are aware of your employment benefits, for example some people have PHI (income until retirement) if they are long term sick.

kingstreet

For some heavy/manual occupations two policies is the right approach, particularly for keeping the cost down. This is because for short deferred period/risky occupation classes the cost of the longer-term cover can be reduced.

A MPPI policy covers sickness and accident perhaps for twelve months. At the point that cover ends, you can have a Permanent Health Insurance policy start to pay out to the end of the mortgage term, or retirement if preferred.

I'm not sure of a law which says there has to be a maximum insured benefit. AFAIK this was simply set down by the insurance industry to avoid the kind of moral risk lisy suggests. Now that PHI benefits are completely tax-free you'll be pushed to be able to justify more than 50% on moral risk grounds, unless it's an Exec type product which covers things like pension contributions.

ACG

What lisy has said is spot on.

75% of your wage before tax is a maximum however very few companies offer more than 60-65% of your income. Dont forget though this is your income before tax so you wouldnt actually be that much worse off financially anyway.

Income Protection will pay out until your retirement age for health/sickness issues. 1 or 2 policies will allow you to bolt on Unemployment cover for a small monthly fee extra but that part is limited to 12 or 24 months.

MPPI will usually only pay out for 12 or 24 months as a maximum for health, sickness or Unemployment.

If you are expecting a slow year and one of the outcomes could lead to redundancies its best to get this sorted before anythign gets announced.

kingstreet

I've just done a quick quote to see the difference and TBH there wasn't much.

PHI - £1,250 per month for 25 years with 4 wks deferred, class 4 = £68.39

or

A&S - £1,250 per month for twelve months with 4 wks deferred = £28.99
+
PHI - £1,250 per month for 25 years with 52 wks deferred, class 4 = £34.61

These are Scot Prov/Paymentshield figures. They were the quickest to get to on my computer.

ACG

kingstreet wrote: »

I've just done a quick quote to see the difference and TBH there wasn't much.

PHI - £1,250 per month for 25 years with 4 wks deferred, class 4 = £68.39

or

A&S - £1,250 per month for twelve months with 4 wks deferred = £28.99
+
PHI - £1,250 per month for 25 years with 52 wks deferred, class 4 = £34.61

These are Scot Prov/Paymentshield figures. They were the quickest to get to on my computer.

just to clarify Class 4 means that its a risky job as in mostly manual work or working at heights.

If you are office based then that could be a Class 1 or 2 in which case those premiums would be significantly lower.

You can also extend the deferred period (the period you wait between going off sick and being able to claim) to make the premiums lower, this usually falls in line with your sick pay at work. So if you have 3 months sick pay or 6 months then the premium would be less than that.

kingstreet

Absolutely. It really only works for those in riskier occupations with a need for a short deferred period.

Someone with, say, six months full pay in a white collar job would be far better off with a 26 week deferred PHI on its own.

wigannwuk

ok thanks for your replies

most companies will only offer 50 % of your gross monthly income.....so im right in assuming legally i could get 25% more cover with another company then?

ACG

legally yes.

In practice no. Most insurers will ask if you have any cover elsewhere and will deduct that from the maximum they will allow.

If you dont mind me asking how much is your income?
Are you looking to cover for Sickness, Unemplomynet or both?

The reason i ask is all companies offer different things, i can do a quick look to see what companies will offer as a maximum based on your income.

wigannwuk

ACG wrote: »

legally yes.

In practice no. Most insurers will ask if you have any cover elsewhere and will deduct that from the maximum they will allow.

If you dont mind me asking how much is your income?
Are you looking to cover for Sickness, Unemplomynet or both?

The reason i ask is all companies offer different things, i can do a quick look to see what companies will offer as a maximum based on your income.

Im on £25k .....i work for a small company so you never know what the next year will bring and id like a bit of peace of mind.

ACG

OK, i have just done some quick searches.

For income protection the heighest i can find is about 58% (£14,500)
Or for short term income protection and unemployment cover (12/24 months) its 65% (£16,000ish)