I’m just about to take out some income protection cover but wondered if I can have two plans with two different Income Protection insurers? I essentially want to be able to cover 100% of my salary, is this possible?
This is a very common question. Many people often make the mistake of over-insuring by taking out two Income Protection Insurance plans in order to try and cover 100% of earnings.
You could theoretically take out as many Income Protection policies as you wish however the key point is not the number of policies but the total level of cover. You will be limited to a percentage of your total gross income and making sure it does not exceed the maximum allowable for each insurer.
Should a claim arise the insurer will ask if you have any continuing income either from your job or any other insurance policies. If you have continuing income the insurer would reduce your level of cover so that you are not receiving more than the maximum they allow.
The issue is that insurers will only allow you to receive a certain proportion of your pre-incapacity earnings whilst out of work. Essentially, insurers do not want you to be just as well-off out of work as when you were in work, so there is always an incentive to recover and get back into work.
If you have two plans, each covering 50% of your income and both insurers had a maximum limit set at 50% of your total income then only one of your policies would pay out. The premiums you paid for the second plan would effectively have been wasted.
On the other hand, if you had only insured 25% of salary with each insurer (resulting in total cover of 50% of income) then there would be no issues at all.
Around half of income protection insurers will allow you to cover a maximum of 50% of your gross (taxable) earnings; however this does depend on your level of earnings as some insurers will allow a higher proportion for lower incomes.
Other insurers will allow you to cover up to 65% of earnings but it just means that the choice of insurers is very limited. It is important to note that any benefit payment from a personal income protection policy is paid tax-free.
More Info: With Income Protection How Much Can I Cover?
For some people who earn a low level of income it will be the case that gross and net earnings are very similar (given the personal tax allowance).
This can cause issues gaining enough cover as nearly all insurers base the level of cover on gross rather than net salary which often leads people to think about trying to take out two income protection policies to cover their outgoings.
If this applies to you please don’t hesitate to pop us a call on 02084327333 or email firstname.lastname@example.org as there are a very small number of plans that do not take earnings into account, just so long as you’re working more than 16 hours per week.
When taking out cover through your limited company most providers require the policy to be set-up by an expert adviser. If you need any help please do not hesitate to pop us a call on 02084327333 or email email@example.com.
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