to think income protection insurance is a con?(46 Posts)
DH and I are buying our first house after renting. The mortgage is roughly 50% of our rent (rental prices are crazy round here and we're lucky enough to have a decent deposit), which is handy because I'm just about to give up work to have our first DC.
The mortgage broker wants us to buy income protection for around£50 a month. We're tightening our belts at the moment and that's a lot of money to us. I don't want to do it because:
1. I'd rather save some money which we can use in case of any emergency, rather than spending money on something which might not happen
2. We have a 50% deposit, so if it came to the worst we could sell the house, pay off the mortgage and move elsewhere.
3. We have managed to find the rent every month, even during illness/ family tragedy etc., and don't think we will have difficult paying the mortgage for a short period in an emergency. Somehow, paying £600 a year for something that might not happen seems more wasteful.
Obviously, we are saving money on the mortage v. rent, but we'll also be making less money for at least a year while I stop earning.
AIBU to think that income protection a bit of a con, or am I being naive and is it actually a very good idea?
The figure of one in three is used in the stand up to cancer campaign on tv. I had assumed, perhaps naively, they would not have been allowed to broadcast that statistic without it having a firm foundation.
I think 1 in 3 is a bit high. If that was true they would be prohibitively expensive. However the products can be genuinely useful if you are unlucky enough to get an illness. I would encourage people to research (or speak to financial )
The plain facts are sadly that you are quite likely to get a serious illness at some point i your life - isnt it 1 in 3 for cancer? Do your research of course, but I think it is worth considering seriously.
Does you broker think there it is highly likely you will need to claim and if so why? Perhaps he is just gonna get a hefty bonus for flogging it to you. good luck and don't fall for the scare tactics plain facts you want and then make up ur mind.
In theory these products can be very good ideas but it all depends on what the limits are.
For example, a lot of policies will only cover you up to a year and then you are unable to claim for the first three months anyway.
A while back when my job was looking a bit dodgy I thought it may be a good idea to look into this.
But the reality was that they are quite expensive for what you get and I ended up deciding that I'd self insure instead. In other words, I'd stick the money I otherwise would have in the bank. If heaven forbid I was ever made redundant then I'd rely on savings. Luckily we have some.
It all depends on your individual circumstances. They can be a good idea. Just remember though that your financial adviser will be pushing it because he gets a nice commission, not necessarily because it's in your best interests.
I couldn't find any income protection policy that paid out immediately - shortest was 3 months and it was very expensive. This was some time ago however.
I am self employed and paid £100 per month for a lump sum of £237,000. Best financial decision I ever made. Obviously would rather have not got cancer but the thought of what would have happened to me if I hadn't done this is chilling - no job, no home, move back with parents, if they would have me.
Spero - the 6 months is there because you usually get paid by your work for 6 months. If you took a longer or shorter deferred period it would be more expensive...
And my insurance was just for diagnosis of a large number of illnesses - whether I am still alive in five years or not is irrelevant to the policy. But it is massive peace of mind knowing that my daughter will be financially ok. Worth thinking about if you have any spare cash.
I got rid of my income protection as it was bollocks - would have paid only £1,000 per month AFTER six months. So useless, house would have been repossessed by then.
But thank god my adviser urged me to take out critical illness cover - it paid out on diagnosis of cancer and without it I would have been utterly screwed as I am now off work for at least six months for treatment.
My advice is that if you rely heavily on the income of one of you, or are single parent like me, don't dismiss some kind of insurance against illness or injury. I never thought I would get ill - within 11 months of taking out the policy, I had cancer.
financialwizard read my post - I said the Mortgage Broker - NOT Financial Advisor. I would hope an IFA wouldn't do that...
Can I just say that IFA's are not allowed to only offer you the product that pays the best commission, but the product that fits your needs the best.
It has been poor advice that has been the problem in the past.
I wish everyone would stop giving financial advisors a bad name, not all of us are crap at our jobs.
Just so you know it would be irresponsible of a financial advisor not to discuss life and ci cover when taking out a mortgage.
oh no, its usful if you plan it correctly
I had it linked to credit cards and mortgage. I knew redundancy was in the air at some point. So I took it out. It paid my mortgage for a year and credit cards to the tune of 50K (deliberately hoiked up in the 6 month period I 'knew' I was getting a redundancy package)
I think I paid about 50 quid a month for 14 months.
Tip - dont accept voluntary redundancy as that invalidates it.
Also have a look on Money supermarket or go compare or whatever annoying comparison site takes your fancy...!
Firstly a product that covers redundancy isn't Income Protection. Income Protection would cover a percentage of your salary if you are ill. Critical Illness pays out a lump sum on diagnosis of a specified illness. I would get along to an IFA and get some sensible advice. Mortgage brokers are likely to sell you whatever gives them the best commission and would probably be a hell of a lot more expensive than an IFA.
A policy that just covers redundancy is less useful IMHO as it would be extremely expensive and probably only pay in a handful of cases (and as far as I know covers the bank's back and not yours!)
Definitely look VERY carefully at the policy details - not what's covered but what isn't.
Iwill how did you get a policy for 2 years?
I would definitely shop around.
I work for a bank (in complaints) and a lot of the PPI complaints that come in are that the customer could never have claimed on it as they are self employed.
Is it covering you for the full mortgage? Ours is about £20 each, that covers our respective halves of the mortgage.
Also with regards to critical illness, very good point to check what they cover - I may have been misreading it, but I'm sure on the quote I had they would only pay out if you have a less than one year survival rate. Surely that's life and not critical illness?! Sounded a bit harsh - what about if I get MS and can't work but am not likely to die imminently?
Yes took one out four months before being made redundant, luckily for me as I claimed for two years.
A decent IFA would be able to help you, ask your friends/family if they could recommend one.
That £150 is just for the life and critical illness, income protection as well would have been far too much. But yes, definitely shop around, and it's worth even asking your broker if he can offer a discount, they sometimes have the ability to. Good luck with the move and the baby.
Definitely check what level of income they will cover if you are self employed and what evidence of earnings they need, banks and certain brokers are notorious for miss selling to the self employed.
But I would definitely recommend you seriously consider income protection and critical illness cover, Just shop around first.
Thanks Edwin - just looked at the quotes again and realised that it's actually £50 each! And £100 is a LOT of money to guarantee a mortgage of £800pm, not to mention for two people who don't even pay the 40% tax rate. It actually puts it in perspective if you and your DH are both in banking jobs and only paying £150 for income protection and critical illness.
It could well be our self employed status that is pushing up the price, but I will definitely shop around and can now ask some better informed questions.
Yes. DH and I have life ins with critical illness, it costs us £150 a month, the vast majority of the premium cost is the critical illness element, it is especially high for DH as he is an occasional smoker. For us, the critical illness was our biggest concern, although it does stick in my throat a bit paying that sort of amount each month. We don't have income protection, we would have needed to pay far more than £50 a month given banking is a high risk profession for redundancy at the moment and we are both bankers. DH was made redundant last year but he had a big pay out after 25 yrs service and found work within 3 months so that wasn't as much of a concern for us. Again, with critical illness cover, do check what illnesses are covered, they differ vastly. Some, for example, don't cover breast cancer as they argue survival rates are now so good it is not necessarily 'critical'.
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