Permanent Health Insurance

OrangeCake

I'm about to buy my first flat and my broker put me in touch with a broker for Permanent Health Insurance. 

The plan she offers I pay an amount per month and if I am unable to do my job, it pays me a reduced, but reasonable income until retirement. At around £50 a month seemed like a possible good idea. Exact amount depends on the delay I choose to have before it kicks in after I get ill. 

However she also said check I don't already have it through work. I do. But it would only pay out for five years. So I asked could my broker find a policy with a five year delay as that would also presumably reduce premiums. She can't find any. Is this normal? I'd have thought quite a few people would be in a similar situation with okay, but not perfect work cover. 

I don't think I can even just say I'll pay the £50 a month as you can't have two policies paying out at once.

Thanks!

NB not worried about life insurance as I have death in service and no dependents anyway.

Aretnap

I think that most PHI policies only go up to a 1 or 2 year delay. Not sure if there are any that will offer the option of a delay of up to 5 years but it's definitely not a standard option. So if the broker says there aren't any I'd be inclined to believe her. (Assuming she's a whole of market broker and not tied to a specific insurer or a limited set of insurers).

There's an argument for taking out your own policy independent of the work one anyway. As well as only providing cover for 5 years (realistically if you are off work for 5 years you are probably not going to work again at all), a policy which is tied to a specific job can leave you with an awkward situation if you ever change jobs. Yes you could always look for a policy if your own if the new job doesn't come with good cover, however (a) PHI gets more expensive as you get older and (b) if you've developed any health conditions by then, they'll likely lead to exclusions, or even outright rejection.

You can have two policies, you just can't usually claim on both at the same time - so if your own policy had say a 2 year delay  you could only claim the higher of the two incomes in years 3, 4 and 5. This would mean you were paying for some duplication, OTOH it would mean that you had security of knowing that you were covered until retirement age.

DullGreyGuy

What happens if you lose your job tomorrow? Or tomorrow + 3 months notice? Or your employer changes their employee benefits to remove Group Income Protection?

There are schemes with longer deferment periods but ironically they are typically more expensive because they a niche and so no competitive pressure to reduce prices.

I'm not a protection specialist by any stretch of the imagination. I'd imagine that PHI is often slanted towards self employed and Director/Shareholders. It's a relatively expensive product and so many go for the cheaper PPI/ASU product and middle earners assume their employer scheme is sufficient. As such it's probably a relative minority of people who realise their employer scheme/ Group IP is too limited (after all, 5 years sounds a long time) and decide to investigate other options. 

OrangeCake

What happens if you lose your job tomorrow? Or tomorrow + 3 months notice? I'd hopefully get another one as I'd still be healthy. 

Or your employer changes their employee benefits to remove Group Income Protection?
I guess I'd buy my own at that point. I'd have notice, at least. 

Aretnap

OrangeCake said:

What happens if you lose your job tomorrow? Or tomorrow + 3 months notice? I'd hopefully get another one as I'd still be healthy. 

Or your employer changes their employee benefits to remove Group Income Protection?
I guess I'd buy my own at that point. I'd have notice, at least. 

The counter point to both of those arguements is what if by that point you had developed diabetes? Or a degenerative back problem? Or some mental health issues (time off work with stress etc). Something that hadn't stopped you working long term yet, but might well do so in future. You could try to buy your own policy, but at that point you might find that it was unavailable, prohibitively expensive and/or excluded the conditions which you were most likely to need it for.

As with all insurance you have to make your own decision about how much value you attach to looking term security, however speaking as the owner of dodgy hips and knees which are excluded from my PHI and private medical insurance I often wish I'd sorted out such things when I was younger and healthier than I am now.

OrangeCake

Fair point!

Weighty1

Vitality have a policy which will only pay out AFTER a 5yr deferred period.  However, there's a good chance there would be options available with other insurers which would be more cost-effective with a deferred period of 6 or 12-months as Vitality are not often one of the more cost-effective solutions for income protection.

NOTE: beware Vitality "optimiser" options as they require you to partake in their healthy living programme to retain the same premiuim and would increase annually if you did not accrue enough points.

fullofcold

Weighty1 said:

Vitality have a policy which will only pay out AFTER a 5yr deferred period.  However, there's a good chance there would be options available with other insurers which would be more cost-effective with a deferred period of 6 or 12-months as Vitality are not often one of the more cost-effective solutions for income protection.

NOTE: beware Vitality "optimiser" options as they require you to partake in their healthy living programme to retain the same premiuim and would increase annually if you did not accrue enough points.

This is true, and I quoted myself (I am a protection adviser) for a 5 year deferred because we also get group income protection for 5 years and it was £130 per month (not optimised).  I then quoted a 12 month deferred (accepting the fact that the monthly benefit will not pay until the group IPB ends) until retirement and it was £52 per month, so I went with the 12 month deferred.
Plus if the company change the group cover and the benefit payment period reduces I am not going to be penalised.