Income protection insurance - can I take a lump sum instead of monthly payments?

I'veforgotten

Hi, I have a bit of a weird query that nobody seems to know the answer to and wondered if anyone had any experience that could give some advice.

  I suffered a brain injury several years ago which has left me unable to do my fairly high stress/ very mentally demanding job in medicine. 

Luckily I had  job specific income protection insurance which will pay 55% of my wage until I hit my sixties (about 17 years away) as long as I continue being unable to do my job.  This works out at about £18500 a year which is great - covers mortgage and lots of bills and gives the family security.  

From what I can tell on the policy wording the insurance will continue paying out as long as I continue not working or it will cover the difference for a year if I take up a new career but then stop paying after that.

I’m sure the policy is designed for things such as broken bones that are either permanent or will get better etc but my problem is I that my condition will likely get worse but it is hard to predict how fast .   I definitely can’t do my previous job (and there is as close to zero percent chance of being able to do it in the future as you could get )but I’d like to try and do something if only for my self esteem and to meet people (the majority of my social circle was at work)

 I still have ambition and desire to do something (I test in the top 1% of the population for some cognitive abilities and the bottom 1%  in others !)but I am also aware that I am totally disorganised, can’t work under stress and get quite tired as well as my maths completely deserting me. I know that my brain will deteriorate as time goes on so I may not be able to do a job in 5 years that I could do now and then could subsequently be left with no income if I try and work in the short term.  I am probably looking at part time limited hours, low stress (low wage) employment as something I could do - I certainly wouldn’t be able to or expect to earn anything near the amount I get from the insurance company each month.

As you can see the insurance payments are amazing in that they give security (although we don’t have any spare money at the end of each month) but feels also like a millstone that limit and dictates what I can do in life - I’m healthy and active and a really hard worker and I’m not old enough to retire and do nothing.  I think the policy (with inflation) is probably worth around £650-700k total and I wondered if it was possible to “do a deal” with the insurance company to buy out the insurance policy for a lump sum payment (lower than £650-700k) but that covered the mortgage and left me with a sum of cash that would provide security for if I deteriorated quicker but also give me a benefit and motivation to actually trying to earn some money. 

I realise that there are also effects on how much I would pay if I need medical care etc/benefits (I don’t quite qualify for health benefits yet) if I have a lump sum in the bank.

I am just terrified of saying something to the insurance company and then losing the insurance but just would like to know if there are ever alternatives to monthly payments and whether insurance companies are ever likely to consider them

thanks so much in advance - sorry if it was a bit rambley!!  Hope it makes sense - most people I’ve spoken to don’t seem to have much experience with the specific job income protection insurance that I have.

Sandtree

I have known insurers to do a deal and do a lump sum settlement but it won't be anywhere close to the number you are suggesting as it will consider the investment income that the sum will be generating for them which they lose if they cash settle. 

PS. in the cases I know of it was the insurer that initiated the suggestion, I am sure some of the IFAs/protection brokers that frequent here may know of any cases where its been initiated by the insured. 

I'veforgotten

Thanks for the advice.  I guess it doesn’t hurt to ask! Our quality of life would be so much better if we had a lump sum now than a bit each year.  Any idea what a reasonable amount to ask for might be?  About 60% of the amount I mentioned would leave us comfortable and with no debts to worry about - we don’t spend much apart from mortgage!!

TELLIT01

I would simply approach the insurer with the question of if it's something they would consider.  If the response is positive I would try to leave an initial offer to them.  There is always the risk if you open the 'bidding' that the figure you request is lower than they would have offered.  In that situation I would think it highly unlikely that they would make a higher offer.

kingstreet

I've heard of Group PHI being commuted to a lump sum where there was zero prospect of any return to work. Does the benefit go through your employer's PAYE system and come to you post-income tax and NI?

I'veforgotten

Hi,  no it comes direct to me into my bank account.  I was made redundant due to the brain condition so I am no longer employed.  

It is a very job specific insurance and because it is quite mentally demanding I’m pretty sure it would really hard to argue that I will ever be able to improve enough to go back to work but I’m sure they could try to.

I’m not paying any tax or NI on the payments.

lassfarfromhome

Some good info here: 
https://didlaw.com/disability-income-protection/group-income-protection
https://www.rwkgoodman.com/injury/permanent-health-insurance-phi-and-insurance-litigation/

I've been receiving income from a PHI policy for almost a decade now and never had any offer of a lump sum settlement.  I guess there's no harm in asking.  

I'veforgotten

Thanks, for that info - it was really interesting.

 I was really lucky to have taken the good advice of my financial advisor to pay into a private income protection insurance - I always thought it was a bit pricey but glad I carried on with paying premiums!!   

I reckon I might have a chat with the company and see what they say.  still can’t work out whether I would be better with a lump sum or the security of a regular payment - I guess it depends on what they might offer - if they even will offer!  I presume their first offer wouldn’t necessarily be their best offer or even what a good offer might be - I’m not great at negotiating - will have to work on my poker face! 

Thanks for all the advice

lassfarfromhome

If you do get an offer, it's probably worth taking legal advice as they'll probably have a feel for whether you can do better.  I know what you mean about not knowing which is better, a lump sum or regular payment.  If I were offered a lump sum I'd probably bite their hand off, but it would have to be a high enough figure.  Good luck!  And I do hope you are able to do something in the future that brings you joy and fulfilment.  It's tough not being able to work

I'veforgotten

That’s really good advice , thanks.  I’ll keep you posted…..

Sandtree

I'veforgotten said:
Still can’t work out whether I would be better with a lump sum or the security of a regular payment - I guess it depends on what they might offer 

In pure cash terms you'd be better off with the regular payment unless we go through a phase of hyper-deflation or you die notably before the 17 years is up (depending on if you think that's better off or not)... their offer will consider the fact that you may not survive the full 17 years etc.

So the real question is if you have something you can do with the lump sum that makes it worthwhile sacrificing the future income... if your condition is degenerative then maybe you want some once in a life time type trips etc whilst you still can but then you'd need to plan for the income shortfall if you do survive the full term.

Apologies if the above comes across slightly cold but been spending too much time with actuaries recently.