Income protection

Nat190

Good morning all,

Yesterday at work HR organised for a financial advisor to present to us all.

During this talk I was made aware (I likely should have known this already!) That we have an income protection policy through our company.

I have my own policy that I pay £38.98 monthly for with Aviva, is it worth cancelling this?

Thanks!

MattMattMattUK

Nat190 said:

Good morning all,

Yesterday at work HR organised for a financial advisor to present to us all.

During this talk I was made aware (I likely should have known this already!) That we have an income protection policy through our company.

I have my own policy that I pay £38.98 monthly for with Aviva, is it worth cancelling this?

Thanks!

That depends on the policies and if you feel that they meet your needs. 

Why do you feel the need for any income protection policy? If you are PAYE then you have sickness pay, holiday, employment rights etc. If you are sacked you will not get anything from an income protection policy and your contractual redundancy likely exceeds the income protection policy anyway. 

sheramber

SSP of  £100.09 PW  may be well below the normal earnings and not enough to pay the bills.

Alice_Holt

sheramber said:

SSP of  £100.09 PW  may be well below the normal earnings and not enough to pay the bills.

     Indeed.

       When I took out an Income Protection policy, I dovetailed it around the employers offering so it came into force after 1 year (when the employers insurance ceased).  That way the premiums I paid were much reduced (having a 12 month lead time before a claim).

   Luckily neither was needed.

Nat190

Great, thank you all.
Alice_Holt I didn't realise you could defer the start date, my employer covers 5 years so this seems like a good option 

DullGreyGuy

Nat190 said:

Great, thank you all.
Alice_Holt I didn't realise you could defer the start date, my employer covers 5 years so this seems like a good option 

It depends what you mean by "income protection" because there are two different products sold under that name... ASU/PPI and PHI.

The former is the budget version thats an annual policy with adjustable premiums, short deferment periods and redundancy cover (normally) plus only payout for 12-24 months. PHI is the much more expensive product (though there are some cheaper variants) which are a long term insurance with fixed or indexed premiums, longer deferment periods, no redundancy cover (though an optional extra on some) and typically payout until the term of the policy (the cheaper variant is X years instead) 

If you have ASU it will have a deferment but its likely relatively short and probably can only be extended to a relatively modest duration, 12months max probably or less.

Weighty1

Nat190 said:

Great, thank you all.
Alice_Holt I didn't realise you could defer the start date, my employer covers 5 years so this seems like a good option 

There are no providers who allow you to have a deferred period of 5-years.  The longest deferment period is 2-years and often the premiums for this are longer than those for a 1-year deferment period, presumably because evidence shows if you've been off work for 2-years then there's little likelihood of you returning, plus few companies offer deferrment periods of 2-years, most stop a 1-year.

I've recently been arranging cover for a client who had cover through work, however, they still felt that personal income protection was worthwhile because their work plan only started paying out after 6-months but they only received 1-months full sick pay because SSP kicked in for the next 5-months, so firstly you should look at when your work policy pays out and what your sick pay entitlement provides. 

As you say, the scheme pays out for 5-years but the industry stats show that claims on IP policies last on average just over 6-years, or at least they did a couple of years ago, I've not checked any recent stats.  Royal London actually had average claims periods of just under 10-years on their IP plans so whilst a work scheme that covers you for 5-years is decent it's not perfect.

On top of these considerations then it's a matter of looking at the payout.  The work scheme will be paid to you on a PAYE basis so you'd still have tax and NI deducted from the payment.  During this period it may be that your personal plan would top this income up slightly thereby maximising the amount of income you have coming in.

Finally, taking the above into account, does the cost to you make any difference to your lifestyle?  Are you having to give up things to pay for the cover?  And if you didn't have the personal plan in place, what would you need to give up if you didn't receive the income from it?

fullofcold

Vitality offer a 5 year deferred period now @Weighty1 - although the cost is usually more expensive than a 1 year deferred and wait until the 5 year time has elapsed before payment.

Weighty1

fullofcold said:

Vitality offer a 5 year deferred period now @Weighty1 - although the cost is usually more expensive than a 1 year deferred and wait until the 5 year time has elapsed before payment.

Thanks for confirming that!

The quoting portals really need to start taking that into account but like you say, if it's more expensive than many 1-year deferred periods then you've got to question it's benefit for all advisers other than those who are tied to Vitality