Critical Illness or Income Protection Cover

maton91

Hello all,

 Bit of background, I am buying a house by myself and will have a mortgage of £187k. I have three months’ notice at work and will have 26 weeks full sickness pay. I am 30 years old and in good health (non-smoker, ok diet, vigorously exercise 3 or 4 times a week etc...)

 Life insurance to pay my mortgage in case I die is a given (gradual reduction over the term) and I will have a policy to cover this. However, as I will be buying the house by myself I feel I ought to protect myself further but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

 I am not too concerned in case I am made redundant as I have savings and three months’ notice to find alternative employment. But for whatever reason I am unable to work due to an injury or worse then I will have no one to continue paying the bills. So it's more health cover rather than employment cover.

 Any advice would be welcomed!

Sandtree

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

maton91

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

Weighty1

maton91 said:

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

Personally, I'd be trying to find a policy that has no limitation on the claim period (there are plenty).  The industry stats used to show that an average claim on an income protection plan lasted just over 6-years, so whilst a 2-year payout may sound good, if you were to claim there is a strong likelihood that you'd still not be in a position to return to work after claiming for 2-years.

There various ways that premium can be reduced without overly reducing the quality of a plan, such as  having 2 elements of cover, 1 for the mortgage payments which is fixed and a second which provides an inflation linked amount to cover bills until your retirement age. 

I'd just recommend speaking to a protection specialist who can think outside the box a little in respect of what can be done to help keep the cost down but maximise the benefit. 

Sandtree

maton91 said:

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

That's the budget AS/ASU/PPI version of income protection... its an annual policy who's premiums change (go up) each year and at any point the insurer can choose not to renew your policy - many stopped renewing policies in the middle of Covid.

PHI you wont find on a comparison site and need to go via a Protection Broker or IFA. It will normally also pay 60%-65% max of your income (but its not salary so not taxed) however it will payout for as long as you need it until your stated end date (ie your planned retirement - mine is 65). 

The average PHI claim is several years in duration meaning it continues paying for multiple years when your PPI has stopped after 2 years. 

Premiums are also fixed (or index linked) and the insurer can only cancel for fraud or non-payment and so you wont find yourself like PPI customers who's premium increased 4x on covid or simply the policy ended leaving them uninsured.

Weighty1

Sandtree said:

maton91 said:

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

That's the budget AS/ASU/PPI version of income protection... its an annual policy who's premiums change (go up) each year and at any point the insurer can choose not to renew your policy - many stopped renewing policies in the middle of Covid.

PHI you wont find on a comparison site and need to go via a Protection Broker or IFA. It will normally also pay 60%-65% max of your income (but its not salary so not taxed) however it will payout for as long as you need it until your stated end date (ie your planned retirement - mine is 65). 

The average PHI claim is several years in duration meaning it continues paying for multiple years when your PPI has stopped after 2 years. 

Premiums are also fixed (or index linked) and the insurer can only cancel for fraud or non-payment and so you wont find yourself like PPI customers who's premium increased 4x on covid or simply the policy ended leaving them uninsured.

It's not necessarily the AS/PPI version.  Most insurers now offer a PHI policy with a limited claim period.

There's also many insurers who do now quote on the comparison sites for the PHI version, although you can't necessarily always distinguish between which are PHI and which are PPI at first glance..........unless you specifically know which providers do or don't offer each variant.

maton91

Sandtree said:

maton91 said:

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

That's the budget AS/ASU/PPI version of income protection... its an annual policy who's premiums change (go up) each year and at any point the insurer can choose not to renew your policy - many stopped renewing policies in the middle of Covid.

PHI you wont find on a comparison site and need to go via a Protection Broker or IFA. It will normally also pay 60%-65% max of your income (but its not salary so not taxed) however it will payout for as long as you need it until your stated end date (ie your planned retirement - mine is 65). 

The average PHI claim is several years in duration meaning it continues paying for multiple years when your PPI has stopped after 2 years. 

Premiums are also fixed (or index linked) and the insurer can only cancel for fraud or non-payment and so you wont find yourself like PPI customers who's premium increased 4x on covid or simply the policy ended leaving them uninsured.

Thanks for you reply.

I'm struggling to see the different between a PHI and the policy I've quoted ( 60% of gross income for 24 months) but covered until I'm 65 rather than for 24 months. What am I missing?

dunstonh

I'm struggling to see the different between a PHI and the policy I've quoted ( 60% of gross income for 24 months) but covered until I'm 65 rather than for 24 months. What am I missing?

The budget income protection plans tend to have more onerous terms and the lower payout period is a serious limitation.

PHI plans vary significantly.   The differences between the plans means you cannot compare on price alone.  You need to look at a wider number of terms.   Some providers have built PHI products designed to be sold via comparison sites but they seem to be more at the budget end of things.   PHI is one of the more complicated product types to research.

Racky_Roo

Just to add you might have life insurance through your employer so that might not be necessary. Even if it doesn't cover the full mortgage you might consider whether you actually need it, If you're single and die. Your next of kin can freeze payments until the house is sold and they then get the equity when the mortgage is cleared.

Sandtree

maton91 said:

Sandtree said:

maton91 said:

Sandtree said:

Its a personal choice really... for me, income protection (the full fat PHI version, not the budget AS/PPI) is by far more important because it means whatever the cause of being unfit to work my income keeps flowing and I can pay my mortgage and do something towards a pension. 

CI is a bit marmite, there are those that have claimed and think its amazing and there are those who've realised some of the limitations when they either find their particular illness isn't on the list of covered conditions or that medicine has moved on and whilst their condition would have been covered at the time of purchase it isn't now (eg policy covers open heart surgery that would have been used at the time to do a valve replacement but valve replacements are now done by keyhole surgery so not covered).

There are those that are "fortunate" (using the term loosely) and get a CI listed condition and recover well from it, under PHI their payments stop but under CI they've still paid off their mortgage with the lump sum and can now possibly make different life choices 

dunstonh said:

but I don't know if this should be in the form of Critical Illness (add-on to Life Insurance policy) or a separate Income Protection policy

In general, you place Income protection (PHI type) above CIC in the pecking order.   CIC pays lump sums on a range of defined critical illness events.    Income protection doesn't specify the illnesses.

The idea scenario is to have both.  Although many people don't have the budget for it.

So it's more health cover rather than employment cover.

Hence the PHI version and not the PPI version.  The H in PHI being health.

Thanks both for your reply.

Think I'm going for the Income Protection route. On a comparison site I've found policies that cover 60% of gross income (approx 85% of take home income) for 24 months after 180 days in line with my company's sickness payment agreement. Is this a typical policy? I could also increase cover until I'm 65 but its triple the montly cost

That's the budget AS/ASU/PPI version of income protection... its an annual policy who's premiums change (go up) each year and at any point the insurer can choose not to renew your policy - many stopped renewing policies in the middle of Covid.

PHI you wont find on a comparison site and need to go via a Protection Broker or IFA. It will normally also pay 60%-65% max of your income (but its not salary so not taxed) however it will payout for as long as you need it until your stated end date (ie your planned retirement - mine is 65). 

The average PHI claim is several years in duration meaning it continues paying for multiple years when your PPI has stopped after 2 years. 

Premiums are also fixed (or index linked) and the insurer can only cancel for fraud or non-payment and so you wont find yourself like PPI customers who's premium increased 4x on covid or simply the policy ended leaving them uninsured.

Thanks for you reply.

I'm struggling to see the different between a PHI and the policy I've quoted ( 60% of gross income for 24 months) but covered until I'm 65 rather than for 24 months. What am I missing?

because it would be 60% of gross income until you are 65 (for example) not for 24 months. So a relative that damaged their back at age 40 and couldn't return to his career got 25 years of PHI payments rather than just 24 months.