Single female, no children, relatively high earner - is income insurance worth it?

[Arghmetoes]

My building society offered a free hour of financial advice over a year ago. One of the things that was mentioned was income insurance as, for my age (28), I earn very well (£38k now - have name changed!). I didn't pursue it but since then my circumstances have changed a lot. I am now single (fortunately no children), rent and therefore in a much more precarious position and wholly reliant on my own income. In the last year I also suffered a very nasty accident, which I am now completely recovered from but it did make me think how lucky I was to have a good outcome. I can't work out whether it is worth the premium or not. My employers were also fantastic with sick pay, return to work and benefits but I probably won't work for them forever; should I have another accident I may not be as lucky.

Does anyone have income insurance and would you recommend it? I never expected to be earning even half the amount that I do and I'm concious of wanting to be very sensible, ensure a roof over my head and a stable retirement.

Also, if you do recommend it, I assume I have to declare my injuries... should I wait six months before looking into a policy in case something so recent affects the premiums?

You're not a particularly high earner, you don't have dependants or an enormous mortgage/school fees etc and so in your situation if your employer has good sickness benefits it probably isn't worth it.

There are so many exclusions on these policies that they rarely pay out what you expect.

You'd be better off putting the money you would spend on premiums into an instant access isa for a rainy day.

I am a high earner for where I come from! I think MN has some very different ideas on what constitutes 'high' for the average person

I guess my worry is that whatever I could put into an ISA wouldn't cover loss of earnings etc. whereas insurance presumably covers that?

The advisor also made it sound like if I started paying in now I'd get a preferential rate when I got older... I suppose that is hogwash? Thanks for your advice.

it's a gamble, obviously, but the likelihood is that you will be much better off if you save or invest the money instead.

Sorry, I wasn't meaning to criticise your income I was just making the point that it isn't a massive amount of money as a net monthly income. Income protection payments are generally only a percentage of your salary and only last for a limited period of time and also only pay out in very limited circumstances. If you're getting sick pay for example they probably won't pay out. As a result, you'd be better concentrating on putting away a few months' salary in savings/ISAs so that you have a cushion in case of emergencies.

And they're not savings accounts and so you buying the insurance now doesn't have a cumulative effect for when you're older. It might mean your rate is slightly lower but these payments are dead money once they're spent. Each month that you make a payment you've taken a risk that its worth paying out that money on the off chance that you need the insurance payment. Each month that passes that month's money is gone as dead money (but limited your risk that month).

I think your financial adviser was trying to get you to buy a product they'd get commission on.

No. They are really good at getting out of these policies and they are a waste of money.

If you consider your salary to be high, I presume you are saving lots anyway, and are paying a considerable amount into your pension, and have no debts.

In that case, I wouldn't bother with income insurance.

atticus That's okay, I didn't take it as a criticism :)

I take your point about it not being a savings account. Sounds like it wouldn't be worthwhile. I really struggled to get my insurance company to do anything after the accident and I take Grazia's point about them sneaking out of whatever they can.

Currently I pay £174 per paycheck into my pension and only have my student loan to pay off. I'll look into upping my pension contributions if possible.

You should obviously keep some savings in case of emergency - say 6 months' pay - and then keep on saving, since you can easily do so.

Thanks.I struggle sometimes to know what to do for the best - my parents live from month to month a lot of the time apart from a little in an ISA when they have a good month so they haven't really been able to advise when asked and I don't like asking banks/building societies or even advisors as they all have something to sell (hence double checking the insurance advice). I usually have £500 left over every month once I've covered bills, socialising etc., so will ask in work about upping pension contributions as I think that is pre tax, then will ensure I have six months' wages in an instant access ISA, then will look at other ways of saving. I would like to save up for a house deposit too but am in no hurry as I don't like where I'm living at the moment but can't find a job in the area I want to move to.

note the ISA Limit of £15240, and the stuff-all interest rates; you'll be lucky to get 1.5% and inflation is NOT negative.

put some in an ISA but also look at working your money in current accounts that pay more interest.

I disagree with everyone else, I think income protection is very important if you want to be able to maintain your current standard of living if you were to become permanently unable to work.

If you have good sickness benefits then you can tailor your cover to start paying out once your income stops, which means that you monthly premiums would be lower than if you were to have it pay out sooner.

Yes they only pay a % of your income, but it is typically a maximum 60% of your gross earnings, which is not taxable so actually you wouldn't be that much worse off than you normal net income.

You would also need to make sure that you continue paying into a pension whilst claiming as the benefits usually stop once you reach retirement age.

What the adviser probably meant when he said you get a preferential rate when your older, is that the premiums are based on your age and health when you apply, and won't go up when you're older, so it's best to apply now while you're young and healthy.

As far as saving instead is concerned, just say that your premiums for the policy were £50 per month, but you save that instead. If you were to need to claim in 5 years time, you would only have accumulated £3000, but you're not going to be able to live off that until you retire.

Just do read the small print and go to a trusted big name. Read up on claim statistics and don't be put off by people saying they don't pay out. They do if you have a valid claim, and I have seen it first hand.

Sorry, that should say you won't be able to live off £3000 until you are of retirement age.

Have you checked with your employer whether your employer has permanent health insurance? Many companies have it and it pays a proportion of your salary if you're unable to work. It may not have kicked in with your previous accident as it generally only pays out when someone's been off 13 weeks and is unlikely to return to work.

If your employer provides PHI (permanent health) then it would be a complete waste of money.