Critical illness and income protection policies totally overlapped?

j6h

A while ago my IFA encouraged me to take out both critical illness insurance and an income protection policy.  At the time he made good arguments for having both.  However, I've since reviewed both policies and I'm struggling to imagine any circumstances under which the income protection would pay-out but the critical illness wouldn't. 

The income protection policy will only pay-out if I am able to perform no part of the occupation in which I was engaged immediately before the accident or the start of the illness.  This policy is subject to a deferred period of 3 months.  A large part of my occupation involves giving technical/scientific advice.  This is something that I could do (and I think once even did) from a hospital bed.  I really can't imagine any condition that would last for more 3 months, that would prevent me from doing this part of my job, and that would not also qualify as a critical illness. 

Am I missing something obvious here or is the income protection policy really of no value to me? 

I would ask my IFA but I think he has retired.  We parted company on less-than-good terms after I declined to buy unregulated investments from him.  With hindsight that was probably a good call given that the hotel in the Caribbean that he was keen for me to invest in never got built and lots of people lost their savings! 

DullGreyGuy

Firstly the two policies payout in totally different ways... one provides a lump sum, many align it to their outstanding mortgage whereas income protection pays you an ongoing income until a defined date (normally 65th birthday or whatever your aimed retirement date is). 

For many people their mortgage isnt their only cost of living, we tend to eat, need electricity, want to go on the occasional holiday and so whilst having the mortgage paid off by CI doesnt explain how you will continue to maintain any standard of living for then next 25 years (if you were signed off at 40). 

By no means will both policies always respond, the IP is more likely to respond due to the CI requiring certain levels of illness and only certain conditions covered. Take Prostate Cancer, most CI policies require a Gleason score of 7 whereas your doctor may decide you need treatment with radiotherapy etc on a lower score. Its easy to say you can work from a hospital bed etc but life can be very different whilst on chemo/radiotherapy etc. 

CI tends to be poor on mental health issues whereas IP pays out. On the flip side CI may payout on HIV if acquired via  work incident or contaminated transfusion etc which with modern treatments probably wont require you to have enough time off for IP to payout. 

dunstonh

However, I've since reviewed both policies and I'm struggling to imagine any circumstances under which the income protection would pay-out but the critical illness wouldn't. 

CIC and PHI have no overlaps.
CIC pays a lump sum on diagnosis of a specified list of critical illnesses.
PHI pays a regular income if you are unable to work due to an accident or sickness.   It doesn't require those to be a critical illness.

The income protection policy will only pay-out if I am able to perform no part of the occupation in which I was engaged immediately before the accident or the start of the illness.  This policy is subject to a deferred period of 3 months.  A large part of my occupation involves giving technical/scientific advice.  This is something that I could do (and I think once even did) from a hospital bed.  I really can't imagine any condition that would last for more 3 months, that would prevent me from doing this part of my job, and that would not also qualify as a critical illness. 

own occupation is good.  3 months is good.
Your confidence about being able to do your job irrespective of medical conditions you may suffer is great, but in reality, it is misplaced.  You are focusing on short term illnesses by the sounds of it and not long term illnesses.   You are lower risk than some, from what you say, and the premiums will reflect that.    

Weighty1

The most common reasons for claims on income protection plans are mental health conditions and musculo-skeletal problems, especially back problems.  Neither of these would be covered under a critical illness plan except in the most extreme cases, such as pyschosis or a back problem leading to a "total and permanent disability" claim, which is highly unlikely.

The income protection would provide you with money to cover your normal monthly expenditure whilst the critical illness would likely have been arranged to either repay debt OR simply provide a lump sum of cash which would cover any immediate cash needs, for example if you needed to adapt your home to gain wheelchair access or by specialist equipment like a bed which tilts up/down.

There is definitely a good argument for having both and without knowing the exact specifics of what cover you have it looks at face value that your IFA has done right by you.

j6h

Thanks to all three of you!  What you've said aligns with some of the arguments my IFA used.  However, I'm still a bit stuck on the qualifying condition for the income protection plan.  If it said something along the lines of "The policy will start to pay a claim if the insured's GP signs him or her off work for more than 3 months" then I'd agree with you completely.  Unfortunately the actual condition is something like "able to perform no part of the occupation in which he or she was engaged immediately before the accident or the start of the illness".  That's a lot tougher.  Even with the examples that Weighty1 gives I find it difficult to imagine that I'd be demonstrably unable to give at least some technical advice over a period of 3 months.  A musculo-skeletal problem might stop me going into the office but, since Covid, people have managed to work from home perfectly well.  And although an ongoing mental health issue would be terrible I'd expect there would be at least some time during a 3 month period when the insurer could say that I was able to  do a small part of my occupation, if not all day every day. 

Is it perhaps the case that, in practice, income protection insurers take a more relaxed view of "able to perform no part of the occupation"?  And if so, is it a relaxed view that the insured can always rely on?

DullGreyGuy

I think you are overthinking it slightly... being fit to do a job considers the level of pain/suffering you are in and the fact you may be physically able to speak doesnt make you fit for giving technical advice that requires concentration to ensure the right advice is given... would you be happy seeing your GP knowing they were on a high dose of morphine and away with the fairies 95% of the time or would you say they werent fit for work even though technically they can still speak to you over a VC?

j6h

Good point DullGreyGuy, but if my GP were away with the fairies 95% of the time and he had my income protection plan would the insurers say that he was still able to do 5% of his job?  And what sort of condition might necessitate him taking that high dose of morphine every day for over 3 months that isn't a "critical illness"? 

In my limited experience insurers tend to take a very strict view of the policy wording when it comes to paying claims.  I'm concerned that the wording of my policy is so hard-line that, at least in my case, the insurers could always say they have "good reason" for not paying a claim. 

DullGreyGuy

j6h said:

Good point DullGreyGuy, but if my GP were away with the fairies 95% of the time and he had my income protection plan would the insurers say that he was still able to do 5% of his job?  And what sort of condition might necessitate him taking that high dose of morphine every day for over 3 months that isn't a "critical illness"? 

In my limited experience insurers tend to take a very strict view of the policy wording when it comes to paying claims.  I'm concerned that the wording of my policy is so hard-line that, at least in my case, the insurers could always say they have "good reason" for not paying a claim. 

Not necessarily a "critical illness"... as has been mentioned musculoskeletal conditions rarely trigger CI policies but can be severely debilitating.  

Its very good practice to understand the policy well and many complaints are caused by people being short of the line but people thinking that just short should be close enough. As has been mentioned, both products have payout rates in the low to mid 90%s and so insurers aren't looking for obscure loopholes to avoid claims.

I'll put my cards on the table, I dont like CI very much as a product. An uncle had major heart surgery, limped on for a couple more years and then died. His CI policy didn't respond as when he bought the policy the operation would have been done by open chest surgery and that was a condition of his policy. By the time he needed treatment medicine had moved on and it was now keyhole surgery so it didn't respond. 

PHI to me is a much more valuable policy, its main issue is that if your career accelerates after buying it, and your lifestyle with it, that even index linking means that when you claim 15 years later the monies may not support your current lifestyle.

Weighty1

j6h said:

Good point DullGreyGuy, but if my GP were away with the fairies 95% of the time and he had my income protection plan would the insurers say that he was still able to do 5% of his job?  And what sort of condition might necessitate him taking that high dose of morphine every day for over 3 months that isn't a "critical illness"? 

In my limited experience insurers tend to take a very strict view of the policy wording when it comes to paying claims.  I'm concerned that the wording of my policy is so hard-line that, at least in my case, the insurers could always say they have "good reason" for not paying a claim. 

The general way an insurance company looks at incapacity is based on a GP signing a sick note.  This is basically the doctor saying "you are not fit to work" and from an employment perspective an employer cannot allow stay in who are signed off as sick, hence why insurers use this as their reference point.

As DullGreyGuy suggests, I think you are overthinking it.  Most providers pay out on around 92-93% of income protection claims and that will include claims were people cannot prove lost earnings, were people try and claim even though the condition is excluded and were people have lied on the application form in the first place, so the payout ratios are pretty exceptional when these claims which would never be valid are removed.

j6h

Weighty1 said:

The general way an insurance company looks at incapacity is based on a GP signing a sick note. 

That's great, but if that's the case then why don't they say that in the policy schedule?  Instead they say "able to perform no part of the occupation" implying that they won't honour a claim while the insured is still able to carry out even a small part of their work activities.  That doesn't seem to honour the ideals of clarity and fairness in a contract. 

Weighty1

j6h said:

Weighty1 said:

The general way an insurance company looks at incapacity is based on a GP signing a sick note. 

That's great, but if that's the case then why don't they say that in the policy schedule?  Instead they say "able to perform no part of the occupation" implying that they won't honour a claim while the insured is still able to carry out even a small part of their work activities.  That doesn't seem to honour the ideals of clarity and fairness in a contract. 

I suppose it's because being signed off work as sick is deeming you unfit to work in any capacity.  As I mentioned above, if you are signed off by a doctor then no employer should allow you to work in any capacity so in that case the GP sick note is making you unable to perform any part of your occupation.

I do appreciate that insurers could explain how they deem incapacity more clearly though and simplpy explain that the provision of a sick note is sufficient to be able to claim.  The exception to that is when you have a plan which is arranged with a "suited occupation" or an "any occupation" definition of incapacity but I'm guessing that is not the case here?