Should I Cancel Income Protection?

Income Protection is Too Expensive

Income Protection is an incredibly comprehensive product. It’s designed to replace a proportion of your wages – generally anywhere up to 60% – if an accident or sickness keeps you off work.

The best Income Protection will pay out if anything medically renders you incapable of doing your job, subject to any medical exclusions that arise during the application related to pre-existing conditions.

The best Accident & Sickness policies will also pay out long term, meaning if you fell sick tomorrow and could never work again it will pay out to the policy cease age. This is generally set at your retirement age.

Potentially, you could receive an Income Protection benefit for decades if a really serious medical condition prevented you from working long-term.

Given the breadth of coverage offered, Income Protection tends to be more expensive than other insurances, such as Payment Protection Insurance, a short-term product that generally offers a lower definition of incapacity.

However there are ways you can adjust your policy to lower your premiums rather than cancelling the plan completely which should be your first port of call.

Increase the Deferment Period

One big way to lower the cost of Income Protection is to increase the deferment period. Also known as the deferral period, this works similar to a car insurance excess. It refers to the period you need to wait before being eligible to make a claim under your Income Protection policy.

The longer you can wait before making a claim, the lower the cost will be.

Many people set up Income Protection with a shorter deferral period because they don’t have much in the way of savings at the time or, if they’re self-employed, don’t have  much profit retained in the business to tide them over.

If gradually over time you increase your savings, increase retained profit in a business or otherwise build up a means to sustain yourself for a longer period you can increase your Income Protection deferred period. This can reduce the cost of cover.

Reduce the Policy Cease Age

The policy cease age is usually aligned with your retirement age which, for many younger people, may today be in your late 60s. A typical policy cease age, however, is 65.

You can reduce Income Protection premiums by lowering the policy cease age, perhaps to 60, which will help reduce the cost of cover.

This is because the risk of you developing an illness or injury preventing you from working increases significantly from the age of 60, so premiums cost a lot more to take into account the high risk in the last few years of the policy.

Examine Your Outgoings: Can You Reduce Your Income Protection Benefit?

It doesn’t always make sense to apply for the maximum amount of cover an insurer will offer you. Take a careful look at your outgoings and see if there are any expenses that you could trim back if you had to stop working and potentially look at lowering the amount you’re covered for accordingly.

Do I Need Income Protection If I Have Employer Sick Pay?

Sometimes people cancel their Income Protection policy because they move to a new job that offers sick pay, or they progress in their current role to the point where they get sick pay through work.

This is especially true for people who have been self-employed in the past and are used to not getting any sick pay. However, you have to remember that employer sick pay isn’t always generous and nor is it a long-term solution.

The minimum an employer has to offer you if you fall ill is Statutory Sick Pay (SSP) – and that’s only if you meet certain conditions as an employee.

Employers aren’t obliged to offer any more than this although some do, so it’s important to check your contract. This said, our 2015 Wealth & Protection Survey found that 1 in 4 employers didn’t pay anything about SSP.

What’s more, company sick pay isn’t a long-term benefit. Someone in their thirties tragically struck down by an illness and never able to work again is unlikely to be paid sick pay from their employer for the next three decades until it’s time to retire.

That’s where Income Protection can step in to fill the gap. What’s more, any sick pay you do receive can be used to extend your deferred period and potentially reduce the cost of cover.

I’ve Got Group Income Protection – Do I Still Need My Personal Policy?

Sometimes you may get Group Income Protection through work. In this instance, your employer pays for the protection on your behalf.

If you have Group Income Protection paid for by your employer, there’s often little benefit to continuing to hold a personal policy. However there can be exceptions to this, such as if you’ve suffered a health condition since taking out cover that may prevent you from gaining personal cover again. If in doubt it’s best to run though your situation with an adviser

However, Group Income Protection may only be short-term…

Although most older Group Income Protection polices will offer long-term cover, one issue may be that newer policies are more likely to be short-term policies that won’t pay out right up until retirement.

As a result, many new Group Income Protection policies will pay out for a maximum of two years or five years, depending on your insurer’s terms. This may not be long enough if you’re seriously ill and you may want to keep your personal policy and align the deferred period with when your group cover would stop paying a claim.

Cancelling Income Protection When Your Circumstances Change

As life goes on around us, nothing ever stands still. Inevitably our circumstances will change and we may look to review or even cancel our Income Protection as a result. Big life events include:

• Getting married
• Having children
• Moving house/getting a new mortgage/increasing an existing mortgage
• Getting a pay rise.

If you want more cover as a result of any of the above, you may be able to do so without any additional medical underwriting. If you speak with your insurer or adviser, you may find that under the guaranteed insurability option you can increase the level of cover without having to reapply providing you’re not currently in a claim.

This means that your new level of cover will be priced at the same rate as when you initially applied from a medical standpoint.

Although you’ll pay more as you’re older and you’re asking for an increased benefit, crucially you won’t have to be medically underwritten from scratch.

That means if you’ve suffered any medical conditions since taking out the policy, even if you’ve claimed for them, they won’t be taken into account and excluded when you choose to boost your cover through the guaranteed insurability option.

Does it make sense to cancel your Income Protection policy when your circumstances change?

As mentioned, if you get employer-provided Income Protection, especially long-term Group Income Protection, then there’s little need to have a personal policy as you’re getting the same benefit at no cost to you.

If you move to a job that offers far more generous sick pay than is offered by your current employer, you may also find that the need for Income Protection is negated to the point where you’ll have to apply for a whole new policy to ensure it matches up with your new benefits.

Another reason to cancel is that you may find that you simply can no longer afford Income Protection, no matter how much you adjust the policy to try and fit your budget.

This might be the case after a recent unemployment. In this instance, we’d always say you need to meet essential payments first.

There’s no point having Income Protection if it will stop you paying for your vital needs during a difficult time.

What Happens to Executive Income Protection if I Wind Up My Company?

Executive Income Protection can be converted in some instances to personal cover, but it may be more expensive. It’s worth exploring this as an option, however. This is especially true if you want to ensure cover on continuing terms (i.e. no exclusions on any medical conditions that have occurred since you took out the policy).

Alternatively, many of our clients simply make the move to a personal Income Protection plan. In a way, these are simpler than Executive Income Protection because there are no complications surrounding tax and money paid into the business – as premiums are paid from post-tax income, you’ll receive the benefit absolutely tax-free.

Get in touch if you’re thinking of cancelling Directors’ Income Protection if you move away from working for yourself. It may be that we can find a more suitable option. Plus, don’t forget, moving to an employed role with sick pay isn’t always a replacement for an Income Protection plan (see above).

Temporarily Moving Back to Employment

If you’re not closing down your company but are just letting it be dormant for a while and going back to an employed role – and you envision doing this a lot in the future – then it may be that a personal plan is more suited to you.

This will cover you whether you’re in an employed role or working for your limited company, providing you have proof of income over the past 12 months to back up your earnings when you make the claim.

A personal Income Protection plan might make more sense than Executive Income Protection for those who frequently switch back and forth between employed and self-employed roles as it will cover your work in both capacities.

I’ve Found Cheaper Income Protection Quotes – Should I Cancel My Cover?

This depends on the cover you’ve found. At Drewberry we have access to the entire UK market and can pull Income Protection quotes from all of the UK’s major insurers.

That means the Income Protection policies we offer you are generally the best deal for you given your circumstances and certain parameters we stick to (e.g. only selling own occupation cover to make sure you’re covered in the most comprehensive manner).

Non-advised price comparison websites, on the other hand, may not be offering true Income Protection. They could be offering Payment Protection Insurance instead.

There’s a big difference between Income Protection and Payment Protection Insurance. It’s important to understand the difference when you’re looking for online Income Protection quotes, as many price comparison websites will only offer Payment Protection Insurance (PPI).

If you’ve found quotes on Payment Protection Insurance, you may find that:

• It’s only short term
  PPI generally only pays out for a maximum of 24 months, regardless of whether you’re capable of returning to work.
• Inferior definition of incapacity
  Payment Protection Insurance often only provides suited occupation cover, which means the insurer is entitled to ask you to do another job within your skillset before permitting a claim. We only recommend own occupation cover for Income Protection, which will cover you if you’re unable to do your own specific job.
• You can insure yourself for less
  PPI is linked to an outstanding loan balance and therefore the amount you’ll receive each month will usually be no more than is required to cover your loan repayments. Income Protection is based on your Income, so you can insure yourself for a higher benefit.
• Premiums are reviewable
  Unlike Income Protection premiums, which can be guaranteed, PPI premiums tend to be annually reviewable and may therefore experience jumps in price each year
• PPI providers don’t publish their claims statistics
  Unlike Income Protection insurers – which is published regularly – Payment Protection Insurers don’t tend to publish their statistics on how often they pay out. Use the tool below or see claims data for the top Income Protection providers for the past three years here →

Even if you are looking at Income Protection, switching providers could be problematic if you’ve experienced any medical conditions since you took out the original policy, as these will likely be excluded from any new policy for at least five years, during which time you’ll have to have had no treatment or symptoms for that condition.

My Mortgage is Paid Off – Should I Cancel Income Protection?

If you’ve now paid off your mortgage it may be that you no longer have any major commitments that you need to protect. If that’s the case, you may no longer need your Income Protection.

However, it’s important to consider that you’re still at risk from losing your income, even if you no longer have to pay housing costs.

Other bills will still need paying, such as taxes and utilities, regardless of whether you’ve repaid the mortgage.

What’s more, by the time you’ve paid of your mortgage you’ll likely be far older than you were when you took out Income Protection initially. You may also have suffered from some of the medical conditions that tend to effect us all as we age, such as high blood pressure, high cholesterol and joint/musculoskeletal issues.

If your mortgage is over and you feel like Income Protection is less essential, you might perhaps consider lowering the benefit by deducting mortgage payments from what you’d need each month. This should reduce the cost of cover while still ensuring you have enough to meet core ongoing expenses.

Should I Cancel My UK Income Protection If I Am Working Abroad?

This will very much depend on your insurer and your policy but, more importantly, the country you’re moving to.

Firstly, you’ll need to be a UK resident and earning a UK income for approximately six months before you apply for Income Protection. If you do move abroad, only earnings that are taxable in the UK can be covered. You can’t usually cover a foreign income taxed outside the country.

If your insurer will cover you, you’ll also usually need to either have moved to an insurer-defined ‘safe’ country before making a claim, or be living in one of those countries. Such countries include:

• USA
• Canada
• EU countries (plus countries in the EEA and EFTA)
• Australia
• New Zealand
• Japan

Turkey is sometimes added to this list, also, but again it will depend on your insurer so check your policy documentation.

For those insurers that will cover you while you’re abroad, if you move outside of the ‘safe’ countries listed in your policy you’ll only be able to make a long-term claim if you return to a developed nation to be assessed by a doctor. The doctor will have to assess your condition and your right to claim. You may even have to return to the UK to continue your claim.

There is one particular Income Protection provider that will cover you worldwide, regardless of whether or not you’re earning a UK-taxable income. However, this will be limited to income paid in currencies of a selected number of ‘safe’ countries.

Many Income Protection providers simply suspend cover once you move abroad for a certain period, so it’s important you check your policy. If your Income Protection doesn’t cover you when you move abroad you’ll be paying for cover you’d never be able to claim on and so it probably makes sense to cancel your policy.

Get Advice Before Cancelling Your Income Protection

Income Protection is a hugely valuable product and offers workers up and down the country peace of mind. However, we recognise that in some situations it’s either not feasible or simply not desirable to continue with cover.

If you are not sure what to do please do not hesitate to get in touch, we are here to help.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3753 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.