Income Protection Pay Off

fancypants1

Hi, I have a personal income protection plan that has been paying me a monthly benefit, because I cannot work due to illness, for the last 8 years or so. The insurance company have just completed a medical review on me, and have written to me to confirm that the monthly payments will continue. However, they have also given me the option of a lump sum pay off. I currently get approx £1280 a month in benefit, and the policy has approx 20 years to run, it will only pay me for as long as I cannot work, and the insurance company completes a review annually. I do find this very stressful, and it puts me under a lot of pressure. They have offered me approx £150,000 as a cash lump sum to terminate the policy, and require no further medical evidence. Can anyone give me any advice?

weighty1_2

Not advice, but I'd simply do the maths.

Presumably the provider don't think you are going to return to work within the next 10-years otherwise they wouldn't be offering the lump sum. In fact they probably don't expect you to return to work at all prior to retirement, as the break even point for them was after 10ish years.

If that is the case £150,000 is not a massive amount to last 20-years.

If it was me, I'd take the stress of the annual medical review, especially if the income is index-linked or unless you somehow think you are going to make a recovery or work in another occupation in the future.

fancypants1

Thank you very much for taking the time to reply. It is very tempting when you are offered a lumpsum like this, I can see the maths dont add up but it could pay the mortgage off and thats whats tempting. The policy is index-linked also. Thanks again!

fancypants1

thanks again

kingstreet

There may be future state benefit implications of a £150k lump sum which differ from a £1,300 a month income. In addition, the monthly benefit is paid tax-free (if Permanent Health Insurance contract) while the income from the £150k invested may be taxable.

Taking these with the loss of around £150k in payments (simple £1,280 x 12 x 20) the offer appears rather unattractive.

bigmatt1174

If your policy is index linked as well you are looking at lets say 2.5%, then the following would be roughly what you would pick up over the next 20 years:

Year Monthly Amount Total Amount
2012 £1,280.00 £15,360.00
2013 £1,312.00 £15,744.00
2014 £1,344.80 £16,137.60
2015 £1,378.42 £16,541.04
2016 £1,412.88 £16,954.57
2017 £1,448.20 £17,378.43
2018 £1,484.41 £17,812.89
2019 £1,521.52 £18,258.21
2020 £1,559.56 £18,714.67
2021 £1,598.54 £19,182.54
2022 £1,638.51 £19,662.10
2023 £1,679.47 £20,153.65
2024 £1,721.46 £20,657.49
2025 £1,764.49 £21,173.93
2026 £1,808.61 £21,703.28
2027 £1,853.82 £22,245.86
2028 £1,900.17 £22,802.01
2029 £1,947.67 £23,372.06
2030 £1,996.36 £23,956.36
2031 £2,046.27 £24,555.27
2032 £2,097.43 £25,169.15

TOTAL RECEIVED OVER 20 YEARS £417,535.09

All Tax Free

longtimelurkersam

In the industry this is referred to as a commutation of benefits and they are hoping that the large number will make you go for it.

There are plenty of claimant's out there that take these and regret it and plenty of others for whom it was the best thing. Only you can decide on that.

If you need security of the income, the fact that they have offered such a sum really does indicate that they are unlikely to stop your claim at one of the regular reivews. It is likely that if you decline then they would put you onto a long term review programme where you would probably complete a simple continuation claim form and they would check with your GP that nothing had changed. They are unlikely to go about arranging an independent medical examination (IME) every year. I am guessing you probably just had a thorough IME in order for them to reach this decision?

First things first is to ask for a copy of this to be sent to your GP in order that you may review it with him as of course it may be beneficial to the management of your condition.

If you decline it I wouldn't be too worried about them going after you for turning them down as it is expensive to investigate someone extensively and they will have to get approval of significant expenditure from either a manager or the insurance company that insurers them!

Oh andif you do fancy a lump sum, decline the offer and ask for more as first offer most definetely will NOT be the maximum they would pay to remove you from their books and free up their reserves and save in claims management fees (staff + admin fees for GP reports etC).

fancypants1

Thanks to you all for your replys! They are very helpful and gives me a much clearer path to take.