Income Protection Insurance

DD265

My husband's salary can't cover all of our outgoings on it's own - mine can as I earn double. After 7 years he'll be on a better salary and at that point would be able to cover our current outgoings. Our outgoings today are just under £2200 a month, excluding debt repayment on one credit card which is interest free for 2 years. £800 of this is mortgage which will hopefully come down in 2.5 years - high interest rate as it was a 95% mortgage. We hope to have a baby in 2023 and will be paying for all childcare that we need - which is basically full time unless I opt to go back to work part time.

I am considering income protection insurance again (looked at it when taking out the mortgage, but settled on life and critical illness only) and have two ball parks from a financial advisor:
• £2,500 paid out until you were 65 from 3 months = £48.36
• £2,500 paid out for 2 years from 3 months = £18.43

£50 a month feels like a lot; I can make room for it in the budget but I'm hesitating. When I google, I basically get insurers trying to sell it. For anybody who's taken out income protection, how did you decide on the level of cover and whether it was worth it?

tacpot12

You can bring the price down substantially by having the payments start after 12 months. You should get sick pay for six months, and if you have six months living expenses saved, you can get yourselves to the 12 month point quite easily. I would go for the payment to age 65 option; 2 years is next to useless. Who wants to be worrying about the fact they are going to be homeless in two years time!

dunstonh

I am considering income protection insurance again (looked at it when taking out the mortgage, but settled on life and critical illness only) and have two ball parks from a financial advisor:
• £2,500 paid out until you were 65 from 3 months = £48.36
• £2,500 paid out for 2 years from 3 months = £18.43

Is that from an IFA or an FA? -  avoid FAs as their product pricing is usually a lot more expensive.

Why age 65?  (state pension age is 67, possibly 68 depending on your age.   WIll you have the funding to retire earlier than state pension age? (or if ill, will you be able to afford 2-3 years of no income)

£50 a month feels like a lot; I can make room for it in the budget but I'm hesitating. When I google, I basically get insurers trying to sell it.

I'm surprised as I thought most insurers do not make their PHI income protection version available direct to the public.  Its usually the budget PPI version that you see but most have pulled that product now.

For anybody who's taken out income protection, how did you decide on the level of cover and whether it was worth it?

It's a product that is mostly bought via an IFA or FA. (mostly IFA).  The IFA gives the advice and then normally adjusts it to a compromise position based on affordability.

Be wary as not all income protection is the same.   If you look at the different offerings, you could effectively place them in a budget, standard and comprehensive category.  Yet some of the pricing of budget options is up at the comprehensive level.

The deferment period is one of the key things to look at.   Going from 3 months to 6 months or having a split plan can be a way to reduce the cost.

 £2,500 paid out for 2 years from 3 months = £18.43

An option of last resort that wouldn't be suitable for most people that claim.

lassfarfromhome

As someone who has had to claim on income protection insurance for the last few years, and may never be able to work again, I would 100% go for the more expensive option for the better cover.  I got ill out of the blue in my forties and luckily had this insurance which pays me enough to live on comfortably until I can go back to work or I reach retirement age.  THat's been one thing I don't have to worry about.  Hopefully you will never need to make a claim, but if you do this can be a lifesaver

csgohan4

Life and income assurance are two things you don't want to skimp on, especially the latter. Being under 40, I loaded it to the max 60% of my gross salary with a 12 M deferment which helped reduce the costs down. 

I hope to never use it, but I have the piece of mind.

If your policy covers a significant proportion of your income, they will ask for physical medical and blood tests as well GP report understandably

IAMIAM

Agreed. I did the maximum Income Protection of £3000 per month deferral for 6 months. Costs me £327 fixed a year with Legal and General until age 65. 

DD265

tacpot12 said:

You can bring the price down substantially by having the payments start after 12 months. You should get sick pay for six months, and if you have six months living expenses saved, you can get yourselves to the 12 month point quite easily. I would go for the payment to age 65 option; 2 years is next to useless. Who wants to be worrying about the fact they are going to be homeless in two years time!

Thank you. Statutory sick pay is not sufficient even combined with my husband's salary, and currently we have no entitlement to enhanced sick pay from my employer; it's discretionary and I would prefer not to rely on that as historically (not me, but others) they haven't been great. I do however have health insurance and will check whether anything is included in that policy, plus critical illness (I understand that there are exclusions). We currently have 1 months living expenses in an emergency fund, plus another 2 months elsewhere, but we're working on it.

dunstonh said:

Is that from an IFA or an FA? -  avoid FAs as their product pricing is usually a lot more expensive.

Why age 65?  (state pension age is 67, possibly 68 depending on your age.   WIll you have the funding to retire earlier than state pension age? (or if ill, will you be able to afford 2-3 years of no income)

I'm not sure, but I would certainly shop around and double check I was getting the best value before taking out any policy. I didn't think to check the specifics of this advisor, however.

As for 65, that's what I'm aiming for. No guarantees of course, but there's no guarantee that my state pension age will remain at 68 or that there'll even be a state pension for me. I imagine I could have the policy running for longer, but that's the age I'd discussed briefly with the advisor.

Thanks for all the input. I'll disregard the short term option, and look into the deferment to reduce the costs a bit. I think I'm clear now that I want something in place, and it's a case of figuring out the details.

Sandtree

DD265 said:
I do however have health insurance and will check whether anything is included in that policy, plus critical illness (I understand that there are exclusions). 

If you mean private medical insurance then it won't provide an income replacement... just hopefully get you back on your feet quicker to mitigate how much time you take off sick

I would suggest for CI you need to think about it the other way around, its less that it has exclusions and much more that it only covers certain things. You can be exceptionally ill and low chance of ever returning to work but it wont pay out as its not one of the illnesses on the list

Weighty1

If your outgoings are £2,200/month and your husband has an income then why do you need to look at an income protection plan providing £2,500/month?  In an ideal world you'd maximise the amount of income replacement you have BUT wwe don't live in an ideal world so if budgeting is a factor then consider what the actual shortfall is rather than covering the full expenditure (and then some).

There are also other considerations which can help to reduce the cost, such as looking at covering the mortgage separately if this ends before retirement age.  This can allow you to not index-link the mortgage element which is normally cheaper at outset than an equivalent index-linked version. 

Based on the little info you've provided it sounds like there's multiple ways to skin this cat.

Personally, if the adviser you spoke to never pushed for more clarification on your retirement then I'd wonder about the quality of their advice.  There's not that many people who retire earlier without putting large amounts into a pension pot and the fact that your state retirement age will likely be either 67 or 68 and could easily increase to 70 during the next 2 decades would make me wonder why anyone would recommend a plan to age 65 unless there's a specific reason for it.

Akarsh_K3251

Earnings from job or business or other sources can offer financial protection and security from different liabilities. But, the world is not always predictable and it's always best to be prepared for unforeseeable situations. This is why it's important to safeguard your money.

I chose to buy income protection for mainly three reasons:

• Protection against Inflation, with prices constantly rising, it is vital to have a plan that protects your money while retaining its value in the coming years
• An income protection insurance plan can take care of your family’s lifestyle needs
• The repayment of debt, in my absence, can become a financial burden for your family. My income protection plan covers the same

DD265

Me again...

The advisor is part of a practice representing these guys: https://www.sjp.co.uk/products-and-services/products-and-services

I don't think they're independent, right? Though the breadth of insurers does seem good, and my initial inclination is to look at Legal & General because that's where our life/critical illness is. Am I best finding an independent advisor?

I'm going to see what the difference is between £1500 and £2500 cover. If it's not significant I'll probably take the higher cover, but it's a good idea to look at that and also I'm considering delaying the start to 6 months instead of 3. I'll also find out about increasing the term to 68-70, as I think that sounds sensible.

Whilst I do want to retire at 65 (or earlier!) who knows how things will pan out, and currently we're not looking at being mortgage free until mid 50s (33 now). That should come forward as we free up more money to throw at it, but starting a family will put a spanner in that works for sure! I am finding that our financial progress is snowballing as time goes on, but in the moment it feels pretty slow, and it's still difficult to balance short/medium term goals with long term. Getting better at it though