Critical Illness or Income Protection Cover

maton91

Sandtree said:

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. 

The original policy I quote was 60% of gross income for 24 months which isn't PHI as it has a limited time frame

If I change this time frame  so the policy is 60% of gross income until I'm 65, what is the difference between this and PHI?

kingstreet

Things to always try to include in PHI policy;-

own occupation definition - not the cheaper but harder to claim any occupation or "work tasks" definitions
guaranteed premiums - not those that go up as you get older or are based on the provider's claims experience
benefit payable to retirement - avoid limited payment periods where possible unless you know the likely duration of your likely illness
deferred period to match employer sickness/time your savings would last
consider escalation so your benefit keeps pace with eg inflation

and remember, the benefit is paid tax-free and some work expenses will end so a lower level of benefit may work.

Sandtree

maton91 said:

Sandtree said:

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. 

The original policy I quote was 60% of gross income for 24 months which isn't PHI as it has a limited time frame

If I change this time frame  so the policy is 60% of gross income until I'm 65, what is the difference between this and PHI?

As others have already corrected me, some PHI providers are now listing on comparison sites and so its just a case of making sure it is a long term protection policy and not a 12 month renewable general insurance policy.

Kingstreet has pointed out some key things to consider, I'd also add in thinking about indexation as buying power of £30k now (or whatever you've chosen) will not be the same in 35 years when you are 65. Indexation increases both the premiums and the amount payable under the policy by the same amount. 

lassfarfromhome

Just wanted to say to the OP, you are absolutely right, in my view, to prioritise income protection insurance (preferably the full PHI type).  I have been receiving a proportion of my salary for nearly a decade after I developed an incurable, untreatable illness totally out of the blue in my 40s.  I can't work and almost certainly never will be able to again.  I have another 20 years or so of receiving a good monthly income that means that I have no financial worries, though plenty of others.  Hope you find the right one for you.

kingstreet

Sandtree said:

Kingstreet has pointed out some key things to consider, I'd also add in thinking about indexation as buying power of £30k now (or whatever you've chosen) will not be the same in 35 years when you are 65. Indexation increases both the premiums and the amount payable under the policy by the same amount. 

Yeah. Brains here said escalation when I meant indexation.

Sandtree

kingstreet said:

Sandtree said:

Kingstreet has pointed out some key things to consider, I'd also add in thinking about indexation as buying power of £30k now (or whatever you've chosen) will not be the same in 35 years when you are 65. Indexation increases both the premiums and the amount payable under the policy by the same amount. 

Yeah. Brains here said escalation when I meant indexation.

Apologies, didn't mean to correct the language (I'm the last one to correct someone's spelling/grammar etc), just didn't spot your comment on escalation/indexation. 

kingstreet

Sandtree said:

kingstreet said:

Sandtree said:

Kingstreet has pointed out some key things to consider, I'd also add in thinking about indexation as buying power of £30k now (or whatever you've chosen) will not be the same in 35 years when you are 65. Indexation increases both the premiums and the amount payable under the policy by the same amount. 

Yeah. Brains here said escalation when I meant indexation.

Apologies, didn't mean to correct the language (I'm the last one to correct someone's spelling/grammar etc), just didn't spot your comment on escalation/indexation. 

None taken.