Income protection questions
Income protection questions
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RV8

Original Poster:

1,570 posts

187 months

Saturday 18th June 2011
quotequote all
Hello, I wonder if one of you kind people who are more experienced with life cover and income protection could offer me some advice?

I am self employed, I already have critical illness cover for my mortgage. A couple of weeks ago I had a chat with a financial advisor where he drew up a couple of policies, one being Critical Illness cover and the other an Income Protection policy. Unfortunately the paperwork I was handed did not include a copy of the 'Key features' or the policy documents, only the 'Quote summary' which just detailed the monthly costs and the amount of commission paid. What sort of cover should I expect from a policy such as these? Is it worth having critical illness cover for your income additional to one covering the mortgage payments?

I want to know what you think about income protection insurance or your experiences. If you need to claim what sort of work would one of these policies expect you to return to if your career is no longer an option because an injury makes it impossible for you to return to your previous job, for example a professional musician losing an arm in an accident couldn't do his job, possibly he may never earn anywhere near his previous income in other work, so does he have to take a new job doing whatever he can or will the insurance cover the shortfall in his wages until retirement? Do these types of policies usually only come into effect if you are 'signed on' to job seekers, meaning you need to use your savings to live on? Or do you have to be on the disability register to make a claim?

Although I would rather have a policy and never need to use it naturally I really don't want to pay for a policy unless it will actually offer some security if I am unfortunate enough to have to make claim. I really feel that asking advice from a FA is at best offering information biased towards the package / industry they are employed to promote and focussed on a sales angle rather than the specifics of the cover. I can hardly blame the FA, but it is the closed nature of how the specifics where not offered with the paperwork after my meeting has made me wonder if this is an insurance similar to PPI and MPPI which were notorious for their lack of adequate cover and in effect unlikely to pay out.

Thanks.

Edited by RV8 on Saturday 18th June 00:13

Sarnie

8,231 posts

225 months

Saturday 18th June 2011
quotequote all
Hi,

I run a company of FA's.

Most income protections policies will have an option to choose 'own occupation' or 'work tasks' with regards to the classification of your job and your ability to return it, should you become ill or get injured. Ideally you want a policy that offers you 'own occupation' so that when you make a claim, they will be assessing whether you can carry out your 'own occupation' and not any other position.

If you want to drop me an email I'd be more than happy to talk you through this. smile

Shaun350z

56 posts

170 months

Monday 20th June 2011
quotequote all
Hi RV8,

Like Sarnie I also advise in this area,and it sounds to me as if you met with a pretty useless adviser who clearly just wants to make a sale instead of properly explaining the options.

In reference to Sarnie's comments, whether you can get the 'own occupation' definition will depend on what type of work you do. For example, if you typically sit behind a desk all day you shouldn't have any issue getting the 'own occupation' definition (subject to your medical history), where as if you are say a builder then you will be looking at the 'work tasks' option which means they will assess your claim based on whether you are able to perform certain functional tasks.

Your adviser should have at least given you the 'Keyfacts' booklet to go with the quote but to give a very general outline of the cover and options available (without any specific advice):

- Can typically insure up to 50% of your income (net profit if a sole trader).

- The policy will pay out as a monthly tax free benefit, after the 'deferred period'.

- The deferred period is the time at the beginning that is not covered, for example, 4, 8, 13, 26 or 52 weeks. This is chosen by you, when self employed the adviser will assess with you how long you could live off savings and then set the deferred period accordingly. Where as with employed it is usually chosen to coincide with sick pay entitlement. The policies become much more affordable if able to have a deferred period of 13 weeks or longer.

- The policy will continue paying out until you can return to work, the policy ends (typically at retirement age) or you die and unlike most critical illness polcies you are able to claim more than once.

Income protection is not payment protection but it is quite complicated with different policies having different criteria and benefits so speaking with a decent adviser is worthwhile.

I hope this helps.

Edited by Shaun350z on Monday 20th June 11:35

scotal

8,751 posts

295 months

Monday 20th June 2011
quotequote all
RV8 said:
I am self employed,
That is key. Any Adviser worth his commission will be prepared to put in the legwork on which insurer will offer cover to you and be prepared to back it up in writing.

RV8 said:
I already have critical illness cover for my mortgage.
I assume you meant Life or Critical illness cover with this? Standalone C/i is available, and its usually more expensive than a life or C/i bundle.

RV8 said:
A couple of weeks ago I had a chat with a financial advisor where he drew up a couple of policies, one being Critical Illness cover and the other an Income Protection policy. Unfortunately the paperwork I was handed did not include a copy of the 'Key features' or the policy documents, only the 'Quote summary' which just detailed the monthly costs and the amount of commission paid.
There are plenty of times when I will talk figures with a client prior to running through specifics.
Partly becuase it can lead to a blizzard of paperwork, most of which will be irrelevant. However if I'm giving out quotes (which means I've done the legwork, there will be a Key features attached.

RV8 said:
Is it worth having critical illness cover for your income additional to one covering the mortgage payments?
Yes, provided you can afford it, and provided its the right provider.

RV8 said:
I really feel that asking advice from a FA is at best offering information biased towards the package / industry they are employed to promote and focussed on a sales angle rather than the specifics of the cover.
Yep, its nice to see that the high esteem in which the financial services industry is held is being perpetuated by the bloke you spoke to.

RV8 said:
I can hardly blame the FA,
You can actually, the FA might be targetted, but he still needs to demonstrate that the right product has been recommended. If it appears he is simply flogging you a policy, he either needs to revisit his sales process so you know what you are getting or go and find another industry. There is a set of guidelines in financial advice called "treating customers fairly" one of them reads

said:
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
I'd say he's pretty comprehensively failed that, wouldn't you?


RV8 said:
but it is the closed nature of how the specifics where not offered with the paperwork after my meeting has made me wonder if this is an insurance similar to PPI and MPPI which were notorious for their lack of adequate cover and in effect unlikely to pay out.
Like your income protection policy, PPI policies work when they are set up properly, and do not work when they are merely sold rather than being thought about. You seem to have met someone the industry doesn't need, and I'd advise you to use someone else.

BTW, there are three replies on the thread now, all from financial advisers. The question is, can you trust what we've said?

pacoryan

671 posts

247 months

Monday 20th June 2011
quotequote all
I'll make it a fourth and echo the others, you wouldn't leave my office being able to confuse this with PPI.

It isn't as complicated as it seems, but there are many variables that depend on your situation - the self-employment as highlighted is a key example.

You've seen how much your adviser would earn, the commission is part of the premium, go to a different IFA and get some value!


RV8

Original Poster:

1,570 posts

187 months

Monday 20th June 2011
quotequote all
Many thanks for the replies, I may well send an email Liam, thank you for the offer.

The leg work you mention that the FA would do - all I witnessed was just a check box program on the screen so the quote was generated instantly, it was from one insurance provider rather than the whole market but it was still similar to getting a quote from confused dot com for your car insurance. I didn't really know what questions to ask because I have such little experience with this sort of thing so didn't know where to start. The FA was pretty open to me asking any questions but I think he should have given me more information to read after the meeting.

Would the deferment period normally still require a claimant to use their savings before making a claim, even if they have savings left over after the deferment period has passed? What I am concerned about is insuring against injury and being wiped out financially through spending my entire safety net because the policy requires me to do so, the reason for this is because 50% of my income would not cover everything and there would be some months where I'd need to use other savings to get by, in fact it is entirely the case that some months I earn nothing and then have three invoices paid off earning earn a lump sum - this is not savings, although it would appear to be so - it's the money I have to live off while working on the next project. The deferment period on the policy offered is 13 weeks.

Looking at my quote summary again it seems to be insurance for 'work tasks' (explained as 'activities of daily work') I am covered for which are specified in the Key features I do not have yet. Even though most of my job is desk based, I am an illustrator, perhaps work tasks might be better for me rather than own occupation? It is more than just my career, it's a lifelong passion, leaving it to do anything else due to injury would, in many ways, almost be worse than the financial implications!

I think when I get some free time I'll try to set up a meeting with an IFA, could anyone let me know what a FI would charge for setting up a policy or roughly what (as a percentage of a premium) commission they'll take, I realize it's probably less to do with the commission rate and more about the level of cover offered but it'd still be useful to know?

Again thanks for taking your time to explain a few things to me, I do appreciate your help!

Sarnie

8,231 posts

225 months

Monday 20th June 2011
quotequote all
RV8 said:
Many thanks for the replies, I may well send an email Liam, thank you for the offer.

The leg work you mention that the FA would do - all I witnessed was just a check box program on the screen so the quote was generated instantly, it was from one insurance provider rather than the whole market but it was still similar to getting a quote from confused dot com for your car insurance. I didn't really know what questions to ask because I have such little experience with this sort of thing so didn't know where to start. The FA was pretty open to me asking any questions but I think he should have given me more information to read after the meeting.

Would the deferment period normally still require a claimant to use their savings before making a claim, even if they have savings left over after the deferment period has passed? What I am concerned about is insuring against injury and being wiped out financially through spending my entire safety net because the policy requires me to do so, the reason for this is because 50% of my income would not cover everything and there would be some months where I'd need to use other savings to get by, in fact it is entirely the case that some months I earn nothing and then have three invoices paid off earning earn a lump sum - this is not savings, although it would appear to be so - it's the money I have to live off while working on the next project. The deferment period on the policy offered is 13 weeks.

Looking at my quote summary again it seems to be insurance for 'work tasks' (explained as 'activities of daily work') I am covered for which are specified in the Key features I do not have yet. Even though most of my job is desk based, I am an illustrator, perhaps work tasks might be better for me rather than own occupation? It is more than just my career, it's a lifelong passion, leaving it to do anything else due to injury would, in many ways, almost be worse than the financial implications!

I think when I get some free time I'll try to set up a meeting with an IFA, could anyone let me know what a FI would charge for setting up a policy or roughly what (as a percentage of a premium) commission they'll take, I realize it's probably less to do with the commission rate and more about the level of cover offered but it'd still be useful to know?

Again thanks for taking your time to explain a few things to me, I do appreciate your help!
If he only has access to one provider, then he is a tied-advisor. His 'advice' is therefore limited to the one provider, rather than a portrayal of the entire market. The legwork that would need to be carried out would be to ensure that any policy that is recommended is suitable for your needs and in particular, your employment status.

Your savings have no actual bearing on the underwriting of the policy, I think your getting a little confused. He would have asked you how long you could live off your savings for before you would need the policy to start paying you. You don't NEED to use your own savings at all. If you couldn't survive 13 weeks without payment, request a shorter defered period, although this will increase the premium.

Secure an 'Own occupation' policy if you can. Upon any claim, you want to be judged on being able to complete your own occupation.

No decent FA will charge a fee for writing a policy for you, as they will get paid by the provider.Unless he foregoes his commission and charges you directly. He should let you know this at the outset. The commission will vary from provider to provider, and is directly linked to your monthly premium. The commission will be disclosed on any quotes he provides you.

HTH smile

rog007

5,800 posts

240 months

Tuesday 21st June 2011
quotequote all
You don't say anything about your position re how risky your self-employment is, what your appetite for risk is, what any premiums would be as a % of your income, whether you have any dependents, how old you are or whether you have access to other avenues for support such as wealthy parents or in-laws. All of these, and other factors, will help you determine whether the types of cover you are considering are in fact right for you. The fear factor of what could go wrong is far removed from reality; most people enjoy long and productive lives with no mishaps whatsoever. But if something was to go wrong, what do you 'need' to help support you or any dependents above and beyond what the State would provide or anyone who was liable for your mishap, assuming it wasn't your fault. Good luck!

scotal

8,751 posts

295 months

Tuesday 21st June 2011
quotequote all
RV8 said:
The leg work you mention that the FA would do - all I witnessed was just a check box program on the screen so the quote was generated instantly, it was from one insurance provider rather than the whole market but it was still similar to getting a quote from confused dot com for your car insurance.
Did he give you a client disclosure document? It should explain what services he can offer & whether or not he is tied, offers from a restricted panel or is whole of market.
(Whole of market is a misnomer, because the FSA fudged the definition for some people, but that's awhole different kettle of mumbo-jumbo.)

If he didn't give you that in writing, and didn't clearly explain his fees (If he charged them, when he charged them, if they were refundable) then you are defiitely dealing with the wrong guy.

Shaun350z

56 posts

170 months

Tuesday 21st June 2011
quotequote all
RV8, it's a shame that you have unfortunately met with a FA who clearly isn't intent on doing their job properly.

Please don't let this put you off, most of us are keen to ensure you get not only the right advice but ultimately the financial products that you actually want and can afford. A decent adviser will be able to put everything in clear language for you and it's a lot easier talking about it than through email/forums.

Give our industry another chance, I hope you are pleasantly surprised!