PHI, Income protection or Mortgage protection?

trippy

I think I've finally worked out what the difference is between Income and Mortgage Protection is but I have a few questions:

**Why would someone chose to insure just their mortgage payments when they can insure more to include bills etc? Is it just a case of it being cheaper and they're choosing to insure just the most important financial commitment?

**Why can you only insure a max of £1,000. What if your essential outgoings are more than that?

And lastly a couple relating to our personal circumstances...

We have one earner (my husband) as I stay at home to look after our 2 children (not yet at school). Hubby gets 6 months paid sickness and we're confident that at least one of us would find some way of earning money if he was made redundant.

**So do we need accident, sickness AND unemployment or should accident & sickness be enough? Or do we even need that seeing as he gets paid for 6 months? If it looked like he was never go to go back to work after an illness or an accident then we'd have 6 months paid for me to find a job.

**If I subsequently went back to work instead of my husband would the payments from a PHI plan or ASU cease or be reduced if the plan was just in his name?

**Finally, I am 32 and hubby is 36. We are both non-smokers with no medical problems. Which would be best for us in our current circumstances?

TIA

dunstonh

**Why would someone chose to insure just their mortgage payments when they can insure more to include bills etc? Is it just a case of it being cheaper and they're choosing to insure just the most important financial commitment?

its not really down to cost in most cases but possibly that the mortgage advisor isnt licenced to advice/sell a PHI policy but is able to sell an ASU.

A self employed person may favour the PHI as the unemployment cover on an ASU favours the employed person. A younger person may prefer the PHI as the premiums are likely to be cheaper than the ASU and may not see the unemployment cover on the ASU as being a necessity.

Key differences are that PHI policies are available in regulated or non regulated form and are underwritten to suit the circumstances of the person. Once premium is agreed, it cannot be changed or cover cancelled by the insurer. The ASU is a general insurance policy and is not personally underwritten. So you could end up paying for it and not be able to claim. The insurer can alter premium as well.

The main difference though is that ASU covers unemployment but PHI doesnt. Also, most ASU plans payout for 12 months (although some exist to 24 months). The PHI pays out until the expiry date which is usually the mortgage term or retirement date.

**Why can you only insure a max of £1,000. What if your essential outgoings are more than that?

You dont have a limit of £1000. You have a limit of 60% of your income with a PHI policy. That may be £1000 in your case (?)

**So do we need accident, sickness AND unemployment or should accident & sickness be enough? Or do we even need that seeing as he gets paid for 6 months? If it looked like he was never go to go back to work after an illness or an accident then we'd have 6 months paid for me to find a job.

Thats specific advice that cannot be given here. However, an ASU would be potentially less beneficial than a PHI policy with a 6 month deferment. Only the unemployment side wouldnt be covered then.

**If I subsequently went back to work instead of my husband would the payments from a PHI plan or ASU cease or be reduced if the plan was just in his name?

You dont need to be employed to have a PHI/ASU plan. You could reduce benefits of you wished to.

**Finally, I am 32 and hubby is 36. We are both non-smokers with no medical problems. Which would be best for us in our current circumstances?

Again, too specific to answer (and remain compliant). From what has been said above, you should be able to make that choice for yourself.

The full option would be to have the ASU and the PHI. The PHI would have a 12 month deferment.

payless

Good full answer

Just a point on
"
its not really down to cost in most cases but possibly that the mortgage advisor isnt licenced to advice/sell a PHI policy but is able to sell an ASU."

As both now come under the same "premitted activity" under FSA regulations - this is
not likely the case

Its may be that he is "tied/ panel" to provider(s) that don't offer PHI
or
They purposely don't advise on PHI ( silly but not the same as not having a licence)
For example this "premitted activity " of Non investment insurance contracts also covers car insurance - but many IFAs / Protection Insurance advisers won't advise on this.

OR

That ASU is an "easy" sale rather than the much more complex PHI

dunstonh

Yes, the non regulated/regulated side of it shouldnt be an issue any more. Although the handful of regulated PHI policies wouldnt be available (those few that still exist with a fund element).

I know of one big bank lender that doesnt offer PHI as part of its product range when dealing with the mortgage advisor. They have to pass it to their financial advisor to discuss it. However, the mortgage advisor has a high target requirement for the ASU so you can guess what they focus on.