Income protection insurance?

AmiLondon

Hi Forum, could I have your views on whether income protection insurance is worthwhile? I’m single no dependants, self-employed with decent income, in my 40s with good health at present and have a hefty mortgage. I’m wondering whether it would be wiser, if I’m unable to work due to illness in the future, to overpay my mortgage now and bank on getting a mortgage holiday instead, as well as building up a decent emergency fund/savings. Insurance is approx £50pm which is relatively high. Thanks in advance. 

DullGreyGuy

AmiLondon said:

Hi Forum, could I have your views on whether income protection insurance is worthwhile? I’m single no dependants, self-employed with decent income, in my 40s with good health at present and have a hefty mortgage. I’m wondering whether it would be wiser, if I’m unable to work due to illness in the future, to overpay my mortgage now and bank on getting a mortgage holiday instead, as well as building up a decent emergency fund/savings. Insurance is approx £50pm which is relatively high. Thanks in advance. 

Income protection is a marketing term used by 2.5 different products and so it really depends which product you are thinking of. 

The full fat version, PHI, has an average payout of something in the region of 8 years and in reality the duration of the illness is longer but the policy ends on your 65th birthday (or whatever age you choose at setup). Are you going to be able to realistically build up an emergency fund such that you can sustain your current lifestyle with never working again?

The basic product sold under the same name ASU (also known as PPI) pays out for 1 or 2 years max and so this is much more borderline given it is realistic to hold savings for this sort of duration. 

Personally, PHI is the most important for of long term insurance and well above Critical Illness and probably above Life (and undoubtably for someone with no dependants/partner)

Weighty1

No, it wouldn't be wiser.  I mean, even if you could take a payment holiday on your mortgage what about gas, electric, council tax, food, water, car costs, clothing, tv, mobile, etc etc etc.  Paying £50/month off your mortgage is unlikely to make a massive dent in the length of the mortgage and as mentioned above, average claims on the long-term income protection plans run into the years, not months.  PHI should be most people's first port of call as an insurance product.

IdrisJazz

Like with much insurance, it is something of a gamble.

I assume you have buildings insurance. This is very cheap, but in the unlikely event that your house collapses you won't be homeless - your insurer will build you a new house. How valuable would the cover be to you in the event of a claim, when assessed against both the risk of it happening and the cost of the cover?

That is something only you can answer, ultimately. 

PHI (don't seriously consider any other version) is wonderful if you have and it and you need to use it, but if you don't claim you have arguably wasted your money. Some would disagree - you have had cover, and therefore peace of mind.

There are insurances I would not live without - buildings, contents, travel, life - but I have chosen to roll the dice and take the risk on no PHI. I'm 47, in good health, with a desk-based job, so I feel the odds are good.

But I can have no complaints if something unexpected happens...

Ransom_Dry_Elk

I took out mortgage payment protection insurance as it was a condition of my mortgage. I'm still wit the same provider after 10 years and got the renewal paperwork today. I advise you to read the fine print. One key reason they wouldn't pay out is if you've lost your job due to misconduct. In the employee handbook of my last job there was a clause about 'foul and offensive language' counting as misconduct. That means if you so much as say a naughty word when you stub your toe in the office they can immediately sack you. When you go for your next job and they ask why you left they'll drop you as soon as the word 'misconduct' passes your lips and your insurance will be useless. Nice situation to be in, huh?

DullGreyGuy

Ransom_Dry_Elk said:

I took out mortgage payment protection insurance as it was a condition of my mortgage. I'm still wit the same provider after 10 years and got the renewal paperwork today. I advise you to read the fine print. One key reason they wouldn't pay out is if you've lost your job due to misconduct. In the employee handbook of my last job there was a clause about 'foul and offensive language' counting as misconduct. That means if you so much as say a naughty word when you stub your toe in the office they can immediately sack you. When you go for your next job and they ask why you left they'll drop you as soon as the word 'misconduct' passes your lips and your insurance will be useless. Nice situation to be in, huh?

You are talking about PPI insurance whereas people here are recommending PHI... PHI doesn't have renewals because it's a long term policy and nor does it cover unemployment.

Being realistic, 99.99% of companies are going to sack a good employee for using a "curse word" after causing themselves an injury. Some will use an easy excuse to get rid of someone they dont want but for reasons that are harder to prove and may otherwise require "retaining" etc to fail first. It's the same with the police, a speeding conviction is much easier than driving without due care and so wait for the bad driver to speed and then pull them over for that for the same 3 points. 

After having been sacked for misconduct then absolutely its much harder to get your next stable job but its about owning your actions and trying to put it in the best light possible... now we are getting into the Employment section though and not Insurance.

Aretnap

Ransom_Dry_Elk said:

In the employee handbook of my last job there was a clause about 'foul and offensive language' counting as misconduct. That means if you so much as say a naughty word when you stub your toe in the office they can immediately sack you. When you go for your next job and they ask why you left they'll drop you as soon as the word 'misconduct' passes your lips and your insurance will be useless.?

Obviously this isn't the case. Did anyone ever swear in the office while you were there? We're they instantly frogmarched out of the door by security?

To be dismissed instantly you would have to have committed gross misconduct - which is behaviour which causes an immediate and complete breakdown of trust between employer and employee. Punching somebody, stealing something, that sort of thing. There are scenarios where foul and offensive language might be gross misconduct - racially abusing a colleague, calling a client a c*** to his face etc - but saying a rude word when you hurt yourself doesn't come close. No reasonable employer would dismiss you for doing that, and no employment tribunal would side with an employer who tried.

At worst it would be simple misconduct - and then probably only if you worked in a primary school and did it in front of the children. Simple misconduct requires a series of warnings and attempted to rectify the behaviour prior to dismissal being considered. More relevant for someone whose constant stream of bad language is making colleagues uncomfortable than someone who swears once in a moment of pain.

https://www.gov.uk/dismiss-staff/dismissals-on-capability-or-conduct-grounds

In any event it's irrelevant to PHI which only covers inability to work for health reasons. You are probably taking about some sort of accident, sickness and unemployment insurance - the unemployment part is primarily intended to cover redundancy so misconduct or at least gross misconduct are standard exclusions. Basically no insurer is going to sell you a policy which allows you to punch your boss then claim when you're unemployed as a result because...why would they?

lassfarfromhome

Hello OP, just wanted to encourage you to take out the full fat PHI version as mentioned by DullGreyGuy and Weighty1.  I developed an incurable, untreatable illness in my 40s and have now been unable to work for a decade.  It's unlikely I'll ever be well enough to work again.  Luckily, I have PHI through my work which is the proper PHI sort and pays out until age 65 (or death or return to work).  The potentially catastrophic risk that's worth insuring against, and which you can't self-insure against unless financially you don't need to work, is a long-term illness.  Such an illness and not being able to work for a few years, or potentially ever again, would wipe most people out and/or leave them dependent on partners/families.  I thank my lucky stars every day for the PHI which has meant being able to stay in my own home, and continue to save for a comfortable retirement. 

AmiLondon

Thanks everyone for your responses, much appreciated.