Income protection question

Weighty1

robaber said:

Thank you for all the suggestions. 

The quotes I had, didn't have payouts which increased in line with inflation. This sounds like a good idea and I have added it to my new quotes.

The quotes I now have for indefinite cover are between £40-60 pm. 

Most offer 50% of my salary as payout. 

I see that some of the brokers charge an upfront fee (£25) but have lower premiums. 

Lifesearch also explained that as I have a bad back, they would have to add an exclusion for this. However, when I am 3 years from taking a day off work, due to my back, I would be able to reapply for a new policy, without the exclusion. 

In the mean time, lifesearch suggested that I use a low start policy, which starts premiums low and increases each year. As I hope to redo the policy in a few years, without an exclusion for my back.

And what happens if you suffer a health event which prevents you from re-applying in 3-years?  You are then stuck with a policy which has ever increasing premiums.  Personally, I'd suggest it's always better to have a policy with a non-age related premium to provide long term certainty over affordability.

I guess they are still recommending L&G since you make reference to a "low start" option and only they call their age-costed premium plan by this name.  Also, this type of plan is only available to class 3 and class 4 occupations ie. either those with skilled or unskilled manual jobs, such as warehouseman or tradespeople. Is this correct?  Depending on your age and smoker status there may be at least one Friendly Society available, which LifeSearch don't work with, who would offer more cost effective cover.   

It's also worth noting that L&G may not even cover you if you have had symptoms of your bad back within the last fortnight.  They are really quite cautious over applicants disclosing back issues.

Some brokers do charge an upfront fee but have lower premiums, however, with these brokers you get no protection from the financial ombudsman service for the suitability of the policy as there is no advice provided.  It's a case of caveat emptor (buyer beware).

IAMIAM

I would go to the website money world and find the cheapest you can as Permanent Health Insurance for life.
I took out £3k per month fixed until age 65 with a 6 month deferral. I took into account, pay rises, and and job role so got the cheapest quote. It was with Legal and General in the end. 

I have paid £328 a year per annum for this since 2017. I have checked quotes since and they are all now around £600. With my premium, if I were to only claim for 4 months in my lifetime, that in itself would have paid for the whole of the policy premiums I would have paid until age 65. 

Well worth it. My only concern is I have changed jobs a couple of times since, which puts me in a higher risk group but I don't mind as its the job you do at the start of the policy that counts, if that makes sense. I also was told with PHI, they are all pretty much the same, so I went with the cheapest as its medical professional and own occupation, so a doctors say so rather than a company says so. 

IAMIAM

dunstonh said:

If you took all the income protection varients, you could pop them into three categories.  Budget, Standard and comprehensive.   If you are clerical worker or low risk occupation, you may not find a massive difference in premiums between the versions.    Sometimes high risk occupations cannot get the better plans.

I generally feel that paying to get a budget plan is false economy.   Yes, sales people may try to get you to buy it as they rely on sales but in reality, it is false economy.  You want a plan that pays out what you need.  Not one that cost you less but doesn't do what you need when you need it.

This is interesting. What would you class as budget etc. I have mine with L&G. I knew that my Life Cover with CIC wasn't the best with L&G when in took it out in 2012 to age 65 (I have now kept it) but is L&G Income Protection pants?

Weighty1

IAMIAM said:

dunstonh said:

If you took all the income protection varients, you could pop them into three categories.  Budget, Standard and comprehensive.   If you are clerical worker or low risk occupation, you may not find a massive difference in premiums between the versions.    Sometimes high risk occupations cannot get the better plans.

I generally feel that paying to get a budget plan is false economy.   Yes, sales people may try to get you to buy it as they rely on sales but in reality, it is false economy.  You want a plan that pays out what you need.  Not one that cost you less but doesn't do what you need when you need it.

This is interesting. What would you class as budget etc. I have mine with L&G. I knew that my Life Cover with CIC wasn't the best with L&G when in took it out in 2012 to age 65 (I have now kept it) but is L&G Income Protection pants?

My own PHI is with L&G and I'd not describe it as pants at all.  However, I also wouldn't say that all PHI plans are the same.  Some provide more additional benefits than L&G, such as free "fracture benefit" for up to £4,000 with Royal London or "trauma benefit" with Aviva which pays out 6X your monthly benefit in a lump sum if you suffer certain life changing traumas, like blindness, paralysis, loss of a limb.

L&G are, in general, very good at offering cost-effective premiums for those in low-risk occupations and in good-health.  If this was the case with yourself and your not overly interested in the bells and whistles that some insurers offer then your L&G plan would be absolutely fine.

dunstonh

My own PHI is with L&G and I'd not describe it as pants at all.  However, I also wouldn't say that all PHI plans are the same. 

IIRC, L&G used to have a budget range of plans available and their coverage on those was below market average.  

Also, some providers that cater for their own salesforce would have a more restricted product for them compared to the whole of market version  (I recall Scot Wid and old AXA plans did that).

This risk of calling a provider's offering pants is if they have multiple product versions or, as is often the case, they change over the years.  They may have had a pants version of a particular product at a particular time but it doesn't mean it was their only product or is still the same today.

robaber

Weighty1 said:

robaber said:

Sandtree said:

Sounds like you are getting quotes for the budget version of Income Protection which is properly known as AS(U) but more commonly as PPI

If you want to stick with this budget product what will your plan be after the X years of the policy you decide on? As dunstonh says, there arent many illnesses that can take you out of work for 18-66 months and you then recover and can return.

Remember also that PPI is an annual policy and so premiums will increase as you get older and as we saw with Covid, events can mean insurers refused to continue cover  and so after 10 years of paying premiums your policy can be cancelled/not renewed.

With PHI it is a long term policy and so cannot be cancelled by the insurer other than for non-payment/fraud and you can set the premiums for the whole policy length (or index link them)

Thanks both. 

I got the quotes for legal and general, through a broker called lifesearch. 

They explained that the monthly premiums are fixed, until I retire. 

So would you choose a policy that would potentially pay out until you retire?

That sounds great, but very expensive? 

LifeSearch are generally very good (I know, I started my career with them 15-years ago), although it does depend on the experience of the adviser.

Firstly, whilst the premiums will be guaranteed, have they recommended linking the cover to inflation?  If not then cost of living increases could mean the payout is pitiful (in real terms) in 30+ years since everything will have gone up in cost but the payout is the same.  It's imperative that an income protection plan tracks inflation in all but quite specific cases.

Secondly, it often doesn't cost much more to have a plan paying out for as long as ill-health lasts as one which pays for a maximum of 5-years.  In fact, L&G don't even offer a plan which pays for 5-years, they do either 12-months, 24-months of a full term claim so I'm guessing they've recommended a different company for the 5yr option?

I'd almost always recommend a plan with the indefinite claim period.  Average claims across the industry last just in excess of 6-years, so even an average claim would leave you without income for just over a year if you selected the 5-yr claim option.

Thank you all. 

I now have some quotes on policies, which would pay out for the whole of my working age. 

Life Assure online have suggested Zurich. Between £38 and £46 per month. 

My next decision is to choose the amount of payout £2000 ( my current monthly bills) or £2500 (the current maximum payout offered to me) ?

And whether to choose a level policy or index linked policy? 

Perhaps I may be better off choosing a larger payout from the start e.g. £2500, but level cover, so I know what my premiums will be for the duration. 

I am 36, so the policy will be for at least 31 years. I am a Social Worker and office based. 

I am a mindful of my monthly premiums creaping up to £50, £60, £70. I understand the payout increases at the same rate, to keep up with inflation.

Alternatively, I appreciate that in 31 years time, £2500 may no longer be sufficient. 

Perhaps I am better to choose bills £2000, but index linked. 

Any suggestions?

Sandtree

Firstly... how much do you think £2,500 would buy you in 2050? To do it in reverse, if instead you had taken the policy out in 1992 then according to the Bank of England your £2,500 proposal today would have been £1,075. Would £1,075  be enough to pay your bills etc today? Could you find the shortfall elsewhere?

Secondly... what are your retirement plans? Does the £2,000 consider any saving anything for your retirement? If you couldnt work from tomorrow onwards how much pension would you be getting with no further contributions?