Group income protection settlement

spaghettinoodle21

Hi, hope this is the right place to ask.. 
I have been off work for mental health reasons for about 3 years and get paid 70% of my wage monthly via my employers group income protection insurance. The policy states that it is until retirement (with continuous medical reviews and if still eligible of course).

I have been approached by the income protection insurance about the possibility of a settlement, and what my expectations would be. 

My question is how much is reasonable to expect from an income protection settlement? If I were to be off work until I retire that would be another 30+ years. 

From now until I retire would cost the insurance approx £680,000, now obviously that’s a very big number and they won’t pay anywhere near even half of that. 

My question is if the insurance is currently paying £17,000 a year, what would a reasonable expectation be for a settlement? 

Sorry hope that all makes sense 

Yorkie1

Does the current payment increase with inflation or at any other rate?

poseidon1

spaghettinoodle21 said:

Hi, hope this is the right place to ask.. 
I have been off work for mental health reasons for about 3 years and get paid 70% of my wage monthly via my employers group income protection insurance. The policy states that it is until retirement (with continuous medical reviews and if still eligible of course).

I have been approached by the income protection insurance about the possibility of a settlement, and what my expectations would be. 

My question is how much is reasonable to expect from an income protection settlement? If I were to be off work until I retire that would be another 30+ years. 

From now until I retire would cost the insurance approx £680,000, now obviously that’s a very big number and they won’t pay anywhere near even half of that. 

My question is if the insurance is currently paying £17,000 a year, what would a reasonable expectation be for a settlement? 

Sorry hope that all makes sense 

On the assumption that your current yearly payout is taxable, an important issue to consider is the potential for higher rates of income tax being charged on a lump sum settlement.

The following thread ( similar to your circumstances) is worth reviewing- 

https://www.justanswer.co.uk/tax/qcczc-question-income-tax-lump-sum.html

Depending on the settlement amount on offer, you would be well advised to seek the advice of a tax accountant on the issue of tax, if  neither the insurer or your  employer provide guidance on this point.

IAMIAM

Why don't you just resign and find a different job?

spaghettinoodle21

Yorkie1 said:

Does the current payment increase with inflation or at any other rate?

@Yorkie1 yes it increases once a year (employer increases wage every year but not by a set amount) 

spaghettinoodle21

IAMIAM said:

Why don't you just resign and find a different job?

Because I am unable to work? 

MyRealNameToo

Certainly check the tax situation and if the lump sum would be subject to tax.

They will consider the net present value not just the sum of likely future payments as you can put the lump sum into investments etc and receive an income from that too. Similarly it's not a 100% thing that you will make it to retirement age so again mortality rates will be factored in. 

spaghettinoodle21

MyRealNameToo said:

Certainly check the tax situation and if the lump sum would be subject to tax.

They will consider the net present value not just the sum of likely future payments as you can put the lump sum into investments etc and receive an income from that too. Similarly it's not a 100% thing that you will make it to retirement age so again mortality rates will be factored in. 

Definitely something I need to get advice on as there are mixed answers online. 

I’m just trying to work out what sort of perecentage is reasonable as they have asked what my expectations are. I don’t want to say too low and get less than I could’ve but also don’t want to be unrealistic. 

MyRealNameToo

spaghettinoodle21 said:

MyRealNameToo said:

Certainly check the tax situation and if the lump sum would be subject to tax.

They will consider the net present value not just the sum of likely future payments as you can put the lump sum into investments etc and receive an income from that too. Similarly it's not a 100% thing that you will make it to retirement age so again mortality rates will be factored in. 

Definitely something I need to get advice on as there are mixed answers online. 

I’m just trying to work out what sort of perecentage is reasonable as they have asked what my expectations are. I don’t want to say too low and get less than I could’ve but also don’t want to be unrealistic. 

The issue is that individual IP doesnt attract income tax but Group IP normally goes via the employers payroll so is subject to income tax. 

Group IP is much more common to make a settlement offer than individual but when looking at advice on "income protection" need to look at if its in connection with group or personal. 

Weighty1

spaghettinoodle21 said:

MyRealNameToo said:

Certainly check the tax situation and if the lump sum would be subject to tax.

They will consider the net present value not just the sum of likely future payments as you can put the lump sum into investments etc and receive an income from that too. Similarly it's not a 100% thing that you will make it to retirement age so again mortality rates will be factored in. 

Definitely something I need to get advice on as there are mixed answers online. 

I’m just trying to work out what sort of perecentage is reasonable as they have asked what my expectations are. I don’t want to say too low and get less than I could’ve but also don’t want to be unrealistic. 

Personally, I'd be inclined to let them make the first move.  Like you say, you don't want to undersell the situation and since this is, presumably, your only experience of a long-term income protection claim then how are you expected to know what is reasonable?

Alternatively, you could just go full bore and mutliple the monthly income by the number of months until retirement and then factor in an innflation rate of say 3% and go from there.  Again, like you say, they'll not want to pay anything like that amount but it shows you aren't willing to settle as low as they can get away with.