Personal Income Insurance

The23rdman

I read an article a while ago extolling the virtues of personal income insurance over mortgage insurance. Does anyone have any good advice on how to get a good deal?

Thanks,

Dean

dunstonh

by personal income insurance you would mean permanent health insurance.

Typically the best way is still using an IFA. It is one of those product areas which doesnt have good internet coverage and requires a bit of knowledge as there is no standard criteria and multiple levels of cover.

The23rdman

Hi Dunstonh,

i'm not entirely sure if that is what I meant. It was some time ago I read the article. The crux of it was it's far better to take out a policy that covers you for your income in case of accident or ill health rather than taking out mortgage protection as you'll still have other living expenses to cover.

dunstonh

It is better to take out a PHI policy than an MPPI.

MPPI/ASU plans are lower quality and not underwritten at point of sale. The providers can amend premiums and cancel policies. They are lower down on the pecking order of needs than PHI.

Problem is that PHI is relatively low profit and more work as its mainly paper based and many of the providers dont make their data available to quote portals. So, the internet tends to focus on MPPI as its cheaper to market, easier to apply for and is more profitable than PHI. The fact it isnt as good as PHI isnt their problem as they are not giving advice.

If you asked most people, they wouldnt know what PHI is.

runmartin

I paid off my mortgage in June 2007 and I had a MPPI and mortgage with the Woolwich. I also had a mortgage and MPPI with the Woolwich with my previous house (up to July 2005). I saw a Barclays mortgage advisor who dealt with the moving of the mortgage. His advice was to stop the first mortgage and start up a new mortgage for the new house (which was bad advice on his part and I claimed money back for it). I was also told to take out a new MPPI policy for the new house. Since I paid off the mortgage I noticed that I was still paying MPPI for both mortgages but I thought they were income protection. I phoned the Woolwich this morning and said both polices are invalid now. Do you think I would be able to claim money back as both policies are linked to mortgages that do not exist via mortgage account numbers (same company). I would have thought that the mortgage advisor who terminated one mortgage and started another with the same company should have dealt with it.
Now that I have no income protection, where is the best place to get income protection?
Thanks
Martin

lisyloo

The crux of it was it's far better to take out a policy that covers you for your income in case of accident or ill health rather than taking out mortgage protection as you'll still have other living expenses to cover.

This make perfect sense to me.
A PHI policy pays out an income until retirement if you cannot work.
Many people don't seem to realise that their employers sick pay would end after a few months and then they would be on state benefits.

You need to work out how much you need/want to live on (I think max is 75% of income as the government don't like people to be better off when not working).
There is also a "deferred period" e.g. you don't get any money for the 1st 13 weeks.
You can choose this period and the longer it is, the cheaper your policy. If you have sick pay at work then it would make sense to tie-it in with that, so for example if you get sick pay for 6 months, then you could have a deferred period of 6 months.

Note that inferior policies would cover you for being unable to do ANY job, whereas superioir policies will cover you for YOUR job.
This means that if (for example) you were a solicitor who couldn't work due to memory loss then you wouldn't be expect to work on the counter at Tescos.

PHI makes a lot of sense to me as it's an income if you can't work until retirement when your pension would kick in.
Critical illness only pays out a lump sum and for certain illnesses.
MPPI only pays for your mortgage whereas you still need to eat and fund your pension.

You really need an IFA to set this up for you.
Of course you should check first if your employers offers this or it's included in your pension. I'm lucky as my employer offer PHI for free, so definitely worth spending 10 minutes asking (but don't confuse with private medical insurance PMI which pays for surgery).

lisyloo

I would have thought that the mortgage advisor who terminated one mortgage and started another with the same company should have dealt with it.

I agree.
I would make a formal complaint in your posistion.

Now that I have no income protection, where is the best place to get income protection?

I would go to an IFA for advice.
I am normally very much in favour of doing research yourself however in this case you need advice on how much, deferred period, cover etc, so I wouldn't receommend buying your own policy unless you really understand what you are doing.

Plus (as your know) if they get it wrong you have some comeback.
If you do it on your own and get it wrong - well tough.

The23rdman

Just got back to this thread to find some great replies. Thank you both for your help, it's much appreciated.

The_Governor

I think in his article Martin recommmends that you have Life Cover (in case of death) and Income Protection Insurance.

I've got a Critical Illness policy which I'm thinking about cancelling and replacing with an Income Protection policy.

Are you guys all saying that to get a decent IPP I need to see a Financial Advisor?

Also, looking at the Income Protection polciies only (via Cavendish's website) the thing that bothers me is that they will only offer up to £2500 in my case, which would cover bills but not a huge amount else.

So if I went out to supplement my income by working at Tesco, the policy stops paying.

The other thing that worries me is the "own occupation" bit - I'm an IT Director, and it isn't clear to me where they would see the line drawn in terms of me not being able to do my job.

For example, could they say "You're effectively a glorified Manager, therefore go and get a Managers job in any industry"?

the-chauffeur_2

In short, anyone considering a PHI policy should see an IFA. Each individual's circumstances consist of too many variables for the average person to work out what it is they need. This is one area of advice where advisors really earn their money.

Generally speaking, PHI policies only cover one occupation per policy - so if you've got more than one job, you'll need more than one policy.

As far as 'occupation' definitions are concerned, exact policy wordings differ quite markedly - and as with most things in life, you'll get more if you pay more - but they generally focus on the individuals abilities, training and experience. 'Own occupation' policies will pay if you are unable to perform the material and substantial duties of your own occupation or similar by way of things like position, grading, responsibility, etc. If you're in a role that is mainly sedentary, and you are unable to work in your own role through accident or illness, you're likely to be in such a state that it's unlikely you'd be fit enough to do a similar role.

'Any occupation' policies cast the net much wider - and will often only pay if you are totally unable to perform any part of a job to which you are suited by way of training, qualification and so on. So theoretically, if you're a builder who can't work because you hurt your back, but you have no problem driving, you could be considered fit enough to be a delivery or taxi driver. This is part of the reason that 'any occupation' policies are so much cheaper than 'own occupation'.

Hopefully, you'll never have to claim on the policy. But there are a few very important points anyone considering policies such as these need to consider.

Firstly, most 'own occupation' policies have a limitiation clause that means claimants will only be assessed on an 'own occupation' basis for a set period (sometimes two years). After that, the policy reverts to 'any occupation' defenition. Make sure you ask lots of questions of the advisor and read the plan terms to know exactly what you're buying into.

Secondly, remember that your occupation is not necessarily the same as your job. The assessment of fitness isn't made on where you work - so if you're a teacher, your fitness will be assessed against a generic teaching position in a generic school (although the age range of students will need to correspond), rather than your ability or willingness to teach at your usual place of work. At the same time, how you travel to and from work will not effect the assessment - it's based on whether you can work, not whether you can travel (unless travel itself is an intrinsic part of your role - such as an air host/ess).

Finally, the self-employed/one or two man limited companies need to be very careful when comparing PHI policies - particularly if the owners 'maximise' their income by taking a low regular salary and drawing high dividends. The vast majority of PHI policies will only cover regular earnings/salary drawings as reported to the inland revenue. At point of claim, the insurer will ask for proof of previous year's earnings - usually in the form of reports and accounts and/or tax returns. A common misconception is that these policies will pay benefits on gross drawings or profits, but that's not how they work. More often than not, it is the salary level alone that will determine the level of income the plan will pay. Again, ask questions and read documents.

Hope that helps.