Income protection

sweetbutternut

I'm considering purchasing income protection insurance and have a few questions as I don't quite understand how it works.

1. Do I have to prove my income? What if I change jobs - will this affect my premiums and the amount I can claim?

2. Will claims affect any state incapacity benefits I may be entitled to claim? I'm thinking that state benefits may outweight any claims I may be able to get from this insurance?

3. Any particular terms I should look out for when purchasing this type of insurance?

4. Would critical illness be a better policy to get?

5. Should I use one of those online brokers or go direct to the insurance providers?

Sorry so many questions but I am clueless! Any advice most appreciated. Many thanks.

sweetbutternut

6. One more question - is it like Life insurance where if you give up the policy, it will cost more to buy it again when you are older?

InsideInsurance

1) You prove your income at the point of claim, if you change jobs you can chose to decide if you want to change your cover. If your income goes up it is purely optional as the £X may still be enough, if it goes down then you will probably be better off reducing the cover as you will only receive the maximum allowed by the policy irrespective of what you've insured for (normally circa 60% of gross salary)

2) Cant help with benefits, I imagine for any that are means tested then the income from the insurance would have to be considered but that is gut feel not knowledge

3) My experience (only a few months of trying to sort out my own PHI) is that the policies are all very similar. With the lower ASU product things do very a lot more, for example some give cover whilst you cant do your job where as others only pay if you are unable to do any job

4) They are a different thing, it depends what you are trying to achieve. For example you could develop a small skin cancer that is easily treated and you have almost no time of work, the CI pays out but PHI wouldnt. You could be run over by a bus and become a paraplegic, the PHI pays out the CI wouldnt. You could have a massive heart attack and be unable to return to work, the PHI and CI would pay out

5) There is little to no price difference between the two normally, if you go to a whole of market IFA then in theory you are getting their experience to chose the right product for you where as if you do all the decisions yourself then there is no comeback if you make some duff ones. On the flipside, having to message through a middleman all the time etc can be frustrating

6) Age is a rating factor, unlike life though if you buy it later then your maximum payout is also lower and so it doesnt have as big an impact but still a definite impact.

LifeAssure1369

Hi,

I hope the following will be of help to you.

1. You will need to prove your income at the point of claim. The income amount used is generally the previous 12 months income prior to the claim.
If you change jobs you should advise the product provider, although this does not automatically mean that you will be charged an additional amount as it will depend on what occupation you will have in the future.

2. I dont think that there would be any issue with state benefits as the benefit levels are quite low. Something to consider is the deferred period of the policy which should tie in with your employers benefits if this is applicable.

3. The most important term you should look for is having a policy which provides an 'own occupation' definition when making a claim.

4. These are totally different products. The critical illness policy would pay out a lump sum on the diagnosis of a specified critical illness where'as an income protection policy pays out a regular monthly income if you are unable to work and continues to pay until you do go back to work or until the policy end date. It depends on what you want to cover. if it is your salary then income protection is a better policy for you.

5. You will obtain a more competitive price via an on-line broker [i confirm this as i am an on-line broker]. The previous person stated that it would be more frustrating using a broker. I disagree with this as you will deal with the broker only and i think we have all had negative experiences of using call centres that the insurance companies now operate.

6. Age is definately a factor. I would suggest that age has more of an impact on income protection prices than life cover.

The things that will determine a premium will be your age, smoker status, occupation class, deferred period and term.

Please let me know if you have any other questions.

sweetbutternut

Thanks very much for the very helpful replies and for taking the time to respond.

The main thing that is holding me back at the moment is that I am still unclear as to whether state benefits would be more or an income form this would be more. It wouldn't make financial sense if I got a lower income from this than I would from state incapacity benefit or any other means tested benefits??? Or are there more advantages to this type of cover than the state could ever provide?

For eg, how difficult would it be to get help from the state as compared to getting a payout from income protection?

LifeAssure1369 - I am self-employed, so I wouldn't have employers benefits to consider.
What is an 'own occupation' definition?

sweetbutternut

Also - is the premium like life insurance where you can have a premium that remains unchanging for the life of the policy?

ACG

Income Protection can be taken along side state benefits or seperate.

You can take out income protection for the maximum allowed minus state benefits - the benefit here is that it would save you a bit of money each money.
The downside however is that income protection (providing you get own occupation cover) will pay out if you are unable to do your occupation....state benefits on the other hand will only pay out if you are unable to do various tasks (eg walk 100yds, bend, write, etc....very simple tasks).

I usually recommend to my clients to take the maximum possible unless money is an issue but even then its usually only a couple of pounds a months.

Income Protection can be taken out on guarenteed rates - it depends on the insurer and the product you take out but read the key features and quote before you commit just for your own peace of mind.

ACG

Also, i just wanted to add 9even though it has already been answered).
5) Critical Illness is different to Income Protection. If there is a budget, i tend to reduce down the CI benefit and do some form of income protection. The reason being is that ciritical illness pays out for 1 of around 35 conditions....If you were off work with a bad back then income protection would pay out whereas ciritical illness wouldnt.

6) Personally i would go to a mortgage or financial advisor (slightly biased), but we deal with this day in day out. We could get you a decent quote (cheapest isnt always best) and do the work for you for what will probably cost you very little more each month (ie £1-2 extra)

LifeAssure1369

Hi Sweetbutternut,

An own occupation definition is the best type of income protection policy you can obtain. Basically it means that if you cannot carry out your own occupation due to illness, accident or disability then the policy will pay out for the length of time that you are off work.

Other types of definition include suited occupation and working tasks definition.

I would be very reluctant to reccommend an income protection plan with a work tasks definition as you would only be able to claim if you were unable to carry out certain work tasks duties such as bending, lifting a small weight, walking unaided for 100m.

You would have to be i a very poor state to make a claim on this basis. You could easily have a senario where you are unable to work but cannot satisfy the work tasks definitions.

It is possible to have a guaranteed premium for thys type of policy and i always recommend a guaranteed premium for my clients unless there is a substancial difference between the guaranteed and reviewable premium rates, and then i may be considered depending on the clients budget.