Is income protection for a part time job prudent or over insuring?

robaber

Hi

I work full time and my wife works part time. We are both 41 years old and have one dependent, under 18.

We are very fortunate that my salary covers our monthly experiences. We use my wife's income to make additional contributions to our pensions and to invest in a Stocks and Shares ISA.

A few years ago we took out income protection for me.

Recently we have been considering taking out the same for my wife. This would start after 12 months, to reduce the cost of the premiums to £26 per month for £750 per month cover.

If she was unable to work due to ill health, we would be able to continue to cover our expenses, from my salary.

However, we would loose the contributions to our investments.

In a sense, would paying income protection, insure these contributions over the rest of her working life.

They may also be additional costs, if she required equipment or care, due to illness.

We both have life insurance. We don't have critical illness cover, as we have an emergency fund and some investments, which we could use.

Is getting this cover prudent or are we over insuring?

huckster

Depends on the terms and conditions of the income protection product you would be taking out.

Surely such policies would only pay out for a limited period?

I think you would have to look at specifics of what these policies would actually pay out, based on a number of different situations and then make a judgement call.

What happens if you are made redundant as main earner and due to changes in employment market you cannot get a job for the same salary ?

I have come across a number of people recently who had been working for a local company for over 20 years and earning good money. Unfortunately the company went into administration and they lost their jobs. They were very upset and the Governments redundancy payments on offer would not cover their household bills for long. Fortunately, some of these have found other work within a couple of months, but some are still looking. The employment market is pretty weak at the moment and it depends on how many people with the same skills are looking for new employment.

jackieblack

Personally, I wouldn't bother taking a policy that doesn't pay out for 12 months - if I had such a serious illness that I was unable to work for more than 12 months, investment contributions would be a long way down my list of priorities and, as huckster said, the policy would likely only pay out for a limited period anyway.

Weighty1

https://forums.moneysavingexpert.com/discussion/comment/82089820#Comment_82089820

The better income protection policies pay out for as long as a doctor deems the life assured to be unable to work, potentially up to age 70.

Who says the money HAS to be used for investment purposes? If you are ill for longer than 12-months what is better, to be relying on a spouse's income and state benefits OR to have an additional income coming in and be able to spend that on whatever is necessary, even if it's original allocation was towards investment purposes?

Weighty1

How many hours does your wife work?

I ask because with quite a few providers the incapacity definition changes from an 'own occupation' basis (the one you want) to a houseperson's incapacity definition (the one you definitely don't want).

Often this definition will change if someone is working less than 16hrs/week.

Personally (as an insurance adviser and as someone who is quite risk averse) I don't think you are over-insuring. Those years of not being able to invest could have a massive impact on your retirement living if your wife fell long-term ill soyou are protecting your retirement. As you also say, there may be other needs, like care needs which the money may need to be directed towards so if you didn't have the cover would you have the funds to spend £750/month on top of all your monthly expenditure to cover those additional costs?

You obviously have a large amount of disposable money as a family and using a small proportion of that to provide additional protection to retain your standard of living, both now and in the future, can only be a prudent thing to do. Anyone saying otherwise just isn't assessing the risks fully OR has more tolerance to risk (but that doesn't mean the risk isn't there).

jackieblack

https://forums.moneysavingexpert.com/discussion/comment/82089871#Comment_82089871

The OP made it clear that the insurance would be to cover their investment contributions… they also said "We don't have critical illness cover, as we have an emergency fund and some investments, which we could use."

But each to their own and the OP's appetite for risk may well be different to mine, which is why I only said that, personally, I wouldn't bother, I didn't say the OP shouldn't, it's very much a personal decision

And there is also a risk in paying out several hundred pounds a year for 20+ years for a policy that may never pay out…

robaber

Thank you all for your views, it is helpful.

To clarify, the proposed income protection policy, would pay out until retirement.

The policy doesn't cover redundancy.

My wife works part time, but over 16 hours. The policy covers "own occupation"

That we are currently using the income for Pensions and Investments, but may not use it for that if my wife did became unwell, as there may be other costs, is a good one.

We think we will proceed with the policy.

Thanks all.