Loss of income insurance?

gerardflanagan

Hi

I'm considering quitting my job to go contracting. I might take a few months off inbetween. Is it possible to get insurance for if I become permanently ill? I'm thinking if I got an illness that meant I couldn't return to work, I'd want to know I could still pay my mortgage.

Thanks.

dunstonh

Is it possible to get insurance for if I become permanently ill?

yes. Retailed via IFAs and whole of market protection advisers.

ACG

Permanent health insurance, also known as income protection, but there is also a cheap and (not so) cheerful income protection policy - important not to get the 2 mixed up.

Probably a good idea to do it via a broker as you need to ensure you are not over insured. There are also a few other important things that may get missed if you do it yourself.

gerardflanagan

Thanks both. I will take your advice to ultimately use a broker before putting pen to paper.

ACG, what are the differences between 'income protection' and 'income protection policy'? I have an '"Indexed Income Protection Benefit Plan" already and would like to assess which category it falls into. Thanks.

dunstonh

ACG, what are the differences between 'income protection' and 'income protection policy'?

There are two types of income protection. Short term and long term. The short term is known as payment protection insurance (or PPI for short). The long term is known as permanent health insurance (or PHI for short).

PHI is far superior to PPI. However, most PHI plans can be manually placed into budget, standard and comprehensive form (there is no official classification as such but the differences between them are significant for us to class them that way)

PHI is underwritten on application. PPI is at point of claim. PHI cannot be cancelled by the insurer (PPI can and frequently is). PHI can pay out until retirement. PPI is typically 12 months. PPi claim criteria is harder to meet than a decent PHI policy.

Comparison sites typically sell PPI as its an electronic application process. A number of PHI providers are still paper applications and that doesnt fit with comparison sites. So, they dont include it.

gerardflanagan

Thanks for the detailed reply. My policy pays until I'm 60. I can't find when it was underwritten or if the insurer can cancel it though.

Do you think it's good? Do you think it covers when I'm not employed? There is a part on page 4 of the
generic policy (here) for cover if you are unemployed at the time of becoming ill. However I don't know if you need to have stated you wanted 'unemployment' cover when taking out the policy.

My specific policy here.

Weighty1

This plan would have been underwritten at the point of application as it is the long term income protection (PHI) previously mentioned, so on that basis L&G won't be able to cancel the plan, unless fraud becomes evident.

If you are not working (either employed or self-employed) when you fall ill then typically they use an "activity of daily living" definition of incapacity, as you mention on page 4. This actually makes it extremely difficult to claim on the plan as you'd have to be severely incapacitated to be unable to do 3 of the 6 tasks. That said, this assessment criteria would be almost exactly the same for nearly all PHI providers if you weren't working when you become ill.

I actually don't think PHI plans are much good for protecting people who aren't working and it's one of the few scenarios were I think critical illness cover is better than PHI. For example, you could be diagnosed with cancer yet still be able to do 3 of the 6 tasks so couldn't make a valid claim. Whether it's worth taking alternative cover out is dependent on how long you are going to take off and how risk averse you are. Unfortunately, without having a crystal balls it's impossible to say whether this is a better option than critical illness cover.

Overall, I think L&G have a good policy. My own PHI is with them!

gerardflanagan

Brilliant, thank you!