Income protection provided via company benefit, also paid for separately

Zuzi

I listened to some personal finance podcasters earlier this year and they kept going on about the importance of insurance, income protection mainly.

I have no mortgage and no dependants so life insurance isn't that relevant, but I ended up signing up for income protection (paying out when unable to work, for up to 2 years - the ones up until my retirement felt a tad too expensive)

I have now realised that at work we have a group income protection policy as an automatically included benefit, which would pay out 60% of salary for up to 5 years, 200K in value, subject to insurance conditions (not sure what they exactly are), deferred by 26 weeks. 

Have I made a mistake with the additional protection plan? I assume I would be getting both the payments via work and via my insurance provider should something bad happen, that's a lot of money. 

dunstonh

I have no mortgage and no dependants so life insurance isn't that relevant, but I ended up signing up for income protection (paying out when unable to work, for up to 2 years - the ones up until my retirement felt a tad too expensive)

Was it a permanent health insurance (PHI) limited to years or a payment protection plan (PPI) with 2 years?  Both get marketed as income protection but the latter is often rubbish.    The latter is the type the comparison sites tend to favour.

Have I made a mistake with the additional protection plan? 

Yes, assuming you are already in the group PHI plan.

I assume I would be getting both the payments via work and via my insurance provider should something bad happen, that's a lot of money. 

No. You would not get paid out on both.  You are not allowed to be better off ill than you were working.  This is why the salary figure you protect is limited.

DullGreyGuy

The only advantage with PPI (or ASU as its also known) is that it covers unemployment which your group policy wont. 

If its PHI, which is a form of long term insurance, then there would be no immediate benefit now but were you to change employers to one with a less generous scheme then you'd know your cover is in place and premiums not impacted by any medical conditions you've developed since buying the policy.

dunstonh said:

I assume I would be getting both the payments via work and via my insurance provider should something bad happen, that's a lot of money. 

No. You would not get paid out on both.  You are not allowed to be better off ill than you were working.  This is why the salary figure you protect is limited.

Agree they cannot simply get both but unsure how the potentially differing limits would work in that the occupational scheme allows up to 60% but some standalone ones allow up to 70%. Does the lower, upper or mid point apply?

Zuzi

Thanks @dunstonh

It's a short term personal protection plan, it will pay for a maximum of 2 years. 

As it seems right now, I do have a plan too many.

The private one pays out what is approx 80% of my salary for up to 2 years, deferred by 3 months, and the company one 60% for up to 5 years deferred by 6 months.

I wasn't aware of the company plan when I was buying the private plan - how would that play out if I needed to claim while having both? How do the insurances make sure I am not better off? I had many chats with the insurance sales guy but at no point did he ask me what exactly I have potentially covered by my employer scheme.

Anyways, it looks like I should reconsider paying for the additional plan... it came with some sign-up perks so I'll check the T&Cs but it sounds like it's not money well spent.

Weighty1

DullGreyGuy said:

The only advantage with PPI (or ASU as its also known) is that it covers unemployment which your group policy wont. 

If its PHI, which is a form of long term insurance, then there would be no immediate benefit now but were you to change employers to one with a less generous scheme then you'd know your cover is in place and premiums not impacted by any medical conditions you've developed since buying the policy.

dunstonh said:

I assume I would be getting both the payments via work and via my insurance provider should something bad happen, that's a lot of money. 

No. You would not get paid out on both.  You are not allowed to be better off ill than you were working.  This is why the salary figure you protect is limited.

Agree they cannot si.mply get both but unsure how the potentially differing limits would work in that the occupational scheme allows up to 60% but some standalone ones allow up to 70%. Does the lower, upper or mid point apply?

You've also got to take that one step further because the 60% work related benefit will then have tax and NI deduction as a PAYE benefit so does the personal plan tkae into account the percentage covered or the net take home pay received from the employer led scheme?

I believe that generally the insurer with the lower limit simply caps their benefit amount at that whilst the insurer with the more generous limit would pay up to that.  How they share that between then is anyone's guess or is at least beyond my knowledge 

tacpot12

The other think to bear in mind is what happens if you change jobs and move to a job where there is no income protection, or you are made redundant and can't find another job quickly. The problem with overlaping cover is that it is complicated to appreciate what cover you have and how it would work, in practice, were you to claim. 

I think I would try to investigate this some more as you could have some quite valuable cover already in place that woudl really help if you were unable to work. Our state benefits are not generous despite certain newspapers trying to say that they are. You really don't want to have to live just on benefits if you can afford good insurance cover. 

The podcasters were right, Income Protection is actually the most important insurance that everyone should buy, but life insurance is also very imporant if you have a family. Unfortuantely it can be quite expensive, but by pushing out the point that it starts to pay out to 12 months or beyond, you can reduce the cost significantly. Everyone with Income Protection insurance should aim to have enough savings to cover them until the insurance will payout. 

Zuzi

Thanks everyone for your responses. I felt so good, being all responsible and "financially literate" when I was signing up for the private plan, and now I feel a bit silly 

It's not too expensive, just over 30GBP a month, and I am due to receive an Amazon voucher - and potentially some months' contributions back as cashback too - so I will leave it in place for now, but next year I will look at it again. 

I understand that the company plan obviously only covers me while I am employed by that particular company, and I have sufficient savings to cover me until any payments would start (in fact, probably more than that, but that was my thinking behind this - why should I live off my savings if I can insure myself against a scenario like this?) But the company plan seems overall really generous - and it's absolutely free for me.

I suppose there is also statutory sick pay that people who are signed off get, but that's not a lot as far as I know (no personal experience, luckily)

I still don't understand how the two paralel insurances would work if I were to fall ill. I suppose I could only claim with one of them? Or, I should only have taken up the personal plan for whatever the company plan doesn't cover - e.g. 40% of the salary.