to think income protection insurance is a con?

(46 Posts)
gertrudestein Tue 29-Jan-13 20:19:09

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?

edwinbear Tue 29-Jan-13 20:22:33

I think it depends how secure your dh's job is. If he feels reasonably secure you can probably save the money in a rainy day fund. But if there is any chance he may lose his job, I would personally take it. How long could you pay the mortgage without his income? You may be able to move but would you want the stress and to pay fees/stamp duty etc again?

StinkyWicket Tue 29-Jan-13 20:22:44

Well, we took it out when we got our mortgage, and 5 years later we're claiming on it.

We've spent maybe £1200 over the five years and if we claim back the full 12 months we'll have claimed back £2640, so for us it's ok.

I think under your circumstances it probably wouldn't be necessary. We have an 85% mortgage.

My job is very secure though so I may cancel my portion of it, we are claiming on DHs half at the moment.

StinkyWicket Tue 29-Jan-13 20:23:17

Why just her DH edwin?

NumericalMum Tue 29-Jan-13 20:24:57

YABU it is not a con. It can be lifesaver for some people. If your DH gets a long term illness and can't work what will you do? Not just a cold but say cancer or motor neuron disease or MS?

And do you really mean income protection?

edwinbear Tue 29-Jan-13 20:25:03

Because she is giving up work to have dc. OP are you resigning or going on mat leave? Sorry, when you said giving up work I assumed leaving. Obviously if you are going on mat leave then yes, you need to consider your security of employment as well.

NumericalMum Tue 29-Jan-13 20:26:53

Income protection usually only covers working people. There are homemaker type covers but they are rare. Tbh OP £50 a month seems a lot. Shop around!

StinkyWicket Tue 29-Jan-13 20:27:05

Oh blush missed that bit!

Our income insurance just covers unemployment I think - actually I will have a look at the policy as I got a critical illness quote the other day and it was £70 per monthshock

SecretNutellaFix Tue 29-Jan-13 20:27:13

My DH took our mortgage out 10 years ago with a secure job in his company.

Last June he was made redundant. Luckily he found work very quickly, but that insurance we took out meant we had one less pressure on us when we didn't know if he would find work quickly.

StinkyWicket Tue 29-Jan-13 20:28:24

We got ours free for the first 3 months BTW. I would probably shop around a bit if the mortgage advisor is suggesting (eg) a Woolwich policy for a Woolwich mortgage. They should be doing the shopping for you.

HKat Tue 29-Jan-13 20:29:33

It's not a con. The product itself is sound - the recent publicity is a result of poor selling practices. To the right person it's a good policy.

edwinbear Tue 29-Jan-13 20:30:26

It's also worth considering what any redundancy packages from work would be like and the likelihood of finding new employment before any redundancy/savings run out.

gertrudestein Tue 29-Jan-13 20:30:34

Thanks Edwin & Stinky - that's very interesting.

We're both self employed, running our own businesses so things are not exactly secure. But on the other hand we are in control of our destinies, and can normally increase our workload/ income at short notice if we have to.

Moving probably seems like an ok option at the moment because we've never owned before, but it could well be a lot harder once we're actually in our own home.

ShellyBoobs Tue 29-Jan-13 20:30:44

I'd try somewhere else other than your broker.

Almost guaranteed to be cheaper with someone else.

chicaguapa Tue 29-Jan-13 20:31:22

I think to call it a con is BU. It's like any insurance. You pay for it, but hope you won't need it. But if you think you'll manage without don't buy it.

edwinbear Tue 29-Jan-13 20:33:14

If you are both self employed, please check the details very carefully. Some of these policies can be a bit funny about self employed and levels of income etc. I say that as someone who works in a bank.

gertrudestein Tue 29-Jan-13 20:33:31

Thanks for all these really helpful posts!

I think it sounds like we've got quite an expensive product, but that in principle its not a bad idea.

Can I ask, does anyone have critical illness as well? We are being sold both, but of course that doesn't include insurance for the inherited critical illnesses in my DH's family, which is the most likely cause of trouble!

TeamEdward Tue 29-Jan-13 20:35:01

I'm suprised they offered to cover you, both being self-employed.

gertrudestein Tue 29-Jan-13 20:37:30

Hmm ... the self employed thing is starting to sound a bit fishy. I'm just going off quotes from the broker at the moment, but will ask to look at the paperwork in detail

TeamEdward Tue 29-Jan-13 20:37:37

We have critical illness cover for both me & DH, but only DH is covered for Income Protection (because he is major bread-winner and I am self-employed/SAHM)

ShellyBoobs Tue 29-Jan-13 20:37:37

We have critical illness cover and it was very reasonably priced.

I think it's with Legal and General.

edwinbear Tue 29-Jan-13 20:41:17

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'.

gertrudestein Tue 29-Jan-13 20:55:09

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.

thanks, everyone!

tomme Tue 29-Jan-13 20:59:41

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.

edwinbear Tue 29-Jan-13 20:59:54

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.

tomme Tue 29-Jan-13 21:01:32

A decent IFA would be able to help you, ask your friends/family if they could recommend one.

Iwillorderthefood Tue 29-Jan-13 21:06:23

Yes took one out four months before being made redundant, luckily for me as I claimed for two years.

StinkyWicket Tue 29-Jan-13 21:06:47

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?

StinkyWicket Tue 29-Jan-13 21:07:17

Iwill how did you get a policy for 2 years?

Sallyingforth Tue 29-Jan-13 21:14:49

Definitely look VERY carefully at the policy details - not what's covered but what isn't.

NumericalMum Tue 29-Jan-13 21:28:36

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!)

NumericalMum Tue 29-Jan-13 21:29:21

Also have a look on Money supermarket or go compare or whatever annoying comparison site takes your fancy...!

HollyBerryBush Tue 29-Jan-13 21:34:13

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. grin

financialwizard Tue 29-Jan-13 21:36:44

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.

NumericalMum Tue 29-Jan-13 21:40:18

financialwizard read my post - I said the Mortgage Broker - NOT Financial Advisor. I would hope an IFA wouldn't do that...

Spero Tue 29-Jan-13 21:40:55

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.

Spero Tue 29-Jan-13 21:42:25

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.

NumericalMum Tue 29-Jan-13 21:43:56

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...

NumericalMum Tue 29-Jan-13 21:44:12

or less expensive.

Spero Tue 29-Jan-13 21:44:48

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 Tue 29-Jan-13 21:45:58

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.

niceguy2 Tue 29-Jan-13 21:47:07

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.

sukysue Tue 29-Jan-13 21:49:35

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.

Spero Tue 29-Jan-13 21:51:24

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.

NumericalMum Tue 29-Jan-13 22:06:05

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 )

Spero Tue 29-Jan-13 22:45:05

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.

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