Income protection insurance confusion

[Hectorsgardengnome]

Hello, I’m hoping someone can help explain how PHI (income protection insurance) works as I’m confused.
My policy terms say that the benefit payment is 75% of salary less state benefits.
Does that mean that I have to tell them which benefits I am actually getting or do they deduct a set amount based on what I could potentially get?
It seems that the amount of state benefits I could get will change over time so does that mean that the benefit amount from the insurance will also change to take this into account?
Hope some wise MNetters can help as I’m easily confused 😳

https://www.citizensadvice.org.uk/consumer/insurance/types-of-insurance/income-protection-insurance/#:~:text=You%20can%20expect%20to%20receive,the%20policy%20is%20tax%20free.

Yes - they will deduct the amount they think you should be claiming from the state

Thanks @LordEmsworth
So, if I apply for benefits but get turned down then I wouldn’t get any deduction from the 75% of salary?

Well - it will entirely depend, I am afraid. You would probably need to show the insurer that you aren't eligible for the benefit(s) as they will say, you're eligible so you need to sort it out yourself.

The policy details should list the state benefits that affect the payment, and there will be something in the T&Cs about it. You're best off asking the provider...

I suspect it works in a similar way to income related state benefits so anything you receive reduces what the policy pays out £/£. I'd expect the benefits concerned to be those that replace income so New Style Employment Support Allowance would be the obvious one if you're sick.

Probably Universal Credit too though unless you're renting 75% of salary probably means you wouldn't get it - earning enough to live on.

If you're not eligible, for example you've not got the right NI Contributions for NS ESA, then I'd not expect them to deduct it anyway.

Thanks @Bromptotoo I’m hoping that they will only deduct the state benefits that I am actually getting but it does seem quite complicated as that could change over time so I will have to keep updating them.

From my experience the policy will only pay out x% minus benefits and these are now harder to qualify for. If benefits aren't successfully claimed then sadly the insurer won't top up the payment. I know it doesn't seem fair.

Also they automatically deduct a set amount of the benefits value (potentially the value of ESA) before payment. If a claim is successful you should receive a breakdown of the monthly payment. Don't forget it's taxable.

Thanks @Allboundformoomooland
It really doesn’t seem fair but it is good to know how it works. I don’t relish the prospect of jumping through hoops repeatedly over the next few years to prove to the DWP that I am ill enough to qualify for ESA.

How do they know what amount to deduct if it just says state benefits in the T&C?

Does it say in the T&Cs? It used to be around £5500 for basic rate ESA but not sure if that has changed.

It just says :-
75% of salary less state benefits

I'd be surprised if that wasn't a reference to new style ESA but could you ask the scheme owner or HR if via work?

While your claim is being assessed
You’ll normally get the ‘assessment rate’ for 13 weeks while your claim is being assessed.
This will be:
• up to £67.20 a week if you’re aged under 25
• up to £84.80 a week if you’re aged 25 or over
If it takes longer than 13 weeks to assess your claim, you’ll continue getting the ‘assessment rate’ until you get a decision or until your ESA is due to end.
Your ESA will be backdated if you’re owed any money after 13 weeks.
After you’re assessed
You’ll be placed into one of 2 groups if you’re entitled to ESA. If you’re able to get back into work in the future, you’ll be put into the work-related activity group. Otherwise, you’ll be put into the support group.
You’ll get:
• up to £84.80 a week if you’re in the work-related activity group
• up to £129.50 a week if you’re in the support group