Only 7% of Self-Employed people have income protection!!!

[Winston23]

Hi all,

I'm new to the forum and realize I maybe walking a very fine line and hope not to cross it.

After several years running a mortgage and insurance business (and large regional estate agencies prior), I've decided to go solo. Having managed very large teams during my career, i'm looking forward to being responsible for myself and building a business that's mine and not someone else's.

As a start up I'm looking for any advice from anyone in the protection sector who has made mistakes and i'm always willing to learn. Likewise anyone that feels they could use my experience from an agency or management perspective please feel free to DM me.

As well as arranging all types of life Insurance and Critical illness cover, one of my main focuses is arranging income protection particularly for those who are self-employed, have type 2 diabetes or have a high BMI. The statistics are pretty scary and in my experience many people who are self-employed (particularly those in the early day's) lack backing and can often live hand to mouth. Any unplanned events that steer you off course such as health issues can leave you massively and unnecessarily financially exposed. Income protection can help!

Anyway I hope I haven't broken any forum rules and happy to speak to members who I can help or they can help me. Feel free to DM me to discuss any of the above.

Thanks in advance.

David

 

[JEREMY HAWKE]

While you bring your expertise and experience to the forum you have overlooked that self employment is no longer a vehicle to make a good profit. The new self employed are really workers being exploited . They can just about afford to put food on the table and hope nothing goes wrong !

 

[Gecko001]

When I started self-employment over 20 years ago, I got a few cold calls from people selling income protection insurance. I asked one of them for a ball park figure for the cost of such insurance. I cannot remember the exact cost they gave, but it was just far too high to even contemplate getting it.

In general I am a sceptic when it comes to these types of insurance especially with regard to premiums increases if you make a claim after being diagnosed with a serious illness. One would expect an little increase, but I suspect th increase might be more than just a little.

 

[Mr D]

Used to have income protection many years ago when employed, worked out about 7% of net pay a month.
When I went self employed I had to cancel that - it would have been 25% of net income due to income being lower.

Years later I had card insurance on a credit card and became ill for some months. Claimed on the insurance as you do and they declined it. Due to a collapse at work for a totally different reason a few years previously that caused me to have the night off work.

So these days I don't trust any personal insurance.

Next time I go self employed I won't be considering income protection throwing away of money. Better off under my bed than simply thrown away.

 

[Winston23]

Thank you all for your replies.

A lot of negativity but everyone is entitled to their opinion. The cost can of course vary significantly due to numerous factors such as age, health, whether you smoker or not, your role and the deferred period selected before which it pays out.

As an employed person without sick pay in my prior role, I can speak from experience when I say it really does help when you need it. I was paying less than 1% of my net income to cover 60% of my salary with a one month deferred period and without it things would have got mighty nervy. Less than £13 a month to give you piece of mind to doesn't seem a lot. I was a 30yr old non smoker. If you're climbing ladders or operating heavy machinery then of course you will be paying a bit more than someone sat in an office but then again you would be more likely to need it.

Whilst I appreciate no one likes insurance (and it's a dirty word) or in some cases specific policies like these, it's often when you least expect it do you actually need it. If you have lots of savings or someone can help you out then great, but to take the point made earlier of putting food on the table and hoping nothing goes wrong, well that is the reality and the position of most people!

Ask yourself the questions 'can I pay my bills if I can't work for a month? 3 months? 6 months? a year? What are the consequences of not being able to work? Can I pay my Mortgage/Rent, gas, electric, water, phone, broadband, TV, loans, car? If not then what? If you have saved for years do you want to spend those savings on bills? Not nice questions to ask or indeed think about but the unfortunate reality for most people especially when you have dependents (not just those that are self-employed). If you do get sick pay, for how long? well, after that runs out then what? The longer you defer a policy start/pay out the cheaper it is so income protection can apply to virtually everyone!

No one ever wants to claim on insurance myself included but I don't have that much control over injury or falling ill and particularly with a young family it is always good to have that peace of mind. I have recently just claimed on my car insurance as a French lorry smashed in to the side of me. I didn't particularly want to pay for my car insurance but I'm glad I had it. Granted, car insurance is compulsory but I'm also glad I upgraded to a hire car and included upgraded legal cover to try and get my excess back off the trucking companies insurer and now i'd be in a rather difficult position especially having just started my new business and needing a car to get round. I didn't expect to have a crash but but then again who does.

Healthy debate nevertheless and i really do appreciate members taking the time to respond.

Thanks

 

[Winston23]

Used to have income protection many years ago when employed, worked out about 7% of net pay a month.
When I went self employed I had to cancel that - it would have been 25% of net income due to income being lower.

Years later I had card insurance on a credit card and became ill for some months. Claimed on the insurance as you do and they declined it. Due to a collapse at work for a totally different reason a few years previously that caused me to have the night off work.

So these days I don't trust any personal insurance.

Next time I go self employed I won't be considering income protection throwing away of money. Better off under my bed than simply thrown away.

It's worth noting that providers, products and prices have changed dramatically over the years with some now focused on self-employed. In 2017, 9 of the top mutual's payed out on 93.7% of income protection claims !

 

[Mr D]

It's worth noting that providers, products and prices have changed dramatically over the years with some now focused on self-employed. In 2017, 9 of the top mutual's payed out on 93.7% of income protection claims !

Yes, though still appearing to be reluctant to cover some people and try methods of avoiding paying out.

Its simpler to put some money by. Guaranteed money and no hassle or delays.
Companies are eager to take money. Paying out - perhaps we need to ask the 6.3% as to why.

 

[Newchodge]

Ask yourself the questions 'can I pay my bills if I can't work for a month? 3 months? 6 months? a year

For many the question is 'can I pay my bills if I pay for insurance to cover something which may never happen'.

 

[The Byre]

A lot of negativity but everyone is entitled to their opinion.

There is an attitude in Britain by a great many people, that one must be insured against every stupid and totally avoidable risk - even risks that are completely self-inflicted!

arranging income protection particularly for those who are self-employed, have type 2 diabetes or have a high BMI.

In which case, instead of passively waiting for a miserable death, they should look here

and read the excellent book 'Fixing Dad'.

If you have type two diabetes, insuring against it is the opposite of dealing with the problem!

 

[Winston23]

[QUOTE="perhaps we need to ask the 6.3% as to why.[/QUOTE]

A few reason why a policy wouldn't pay out would be if a claimant's income i'e they say they earn more than they actually do as you will need to prove your income at claim stage (Unless it's a smaller living cost protection policy where income doesn't apply). It maybe that the questions have not been answered correctly in the hope of saving a couple of £ in cases such as smoking or preexisting health conditions. It's in these companies interests to pay out these day's as bad PR goes along way a lot quicker these days.

Re my point about car insurance, a few weeks prior to my accident my other car was stolen off my drive. (On a side note, anyone that has a VW and particularly keyless entry please be advised and read up on this). On both occasions the insurer has bent over backwards to assist and paid out without any hassle whatsoever. A digression from the point but the same principal applies. If you provide the correct information there is no major reason why an insurer wouldn't pay out.

 

[Winston23]

For many the question is 'can I pay my bills if I pay for insurance to cover something which may never happen'.

In most cases the answer would be 'yes'

 

[Mr D]

[QUOTE="perhaps we need to ask the 6.3% as to why.

A few reason why a policy wouldn't pay out would be if a claimant's income i'e they say they earn more than they actually do as you will need to prove your income at claim stage (Unless it's a smaller living cost protection policy where income doesn't apply). It maybe that the questions have not been answered correctly in the hope of saving a couple of £ in cases such as smoking or preexisting health conditions. It's in these companies interests to pay out these day's as bad PR goes along way a lot quicker these days.

Re my point about car insurance, a few weeks prior to my accident my other car was stolen off my drive. (On a side note, anyone that has a VW and particularly keyless entry please be advised and read up on this). On both occasions the insurer has bent over backwards to assist and paid out without any hassle whatsoever. A digression from the point but the same principal applies. If you provide the correct information there is no major reason why an insurer wouldn't pay out.[/QUOTE]

Still no reason to throw money at a company that has probably zero intention of giving me any value for money.
If I died at work tomorrow my employer would pay out no question. If I had life insurance they'd create considerable legal problems for my wife to resolve (probably helps that her brother is married to a solicitor) before they'd maybe pay out.
Two companies neither one wanting me to die but one acting in good faith and one …. based on actions by life insurance companies over the years …. simply wanting the money in but not wanting to pay out.

 

[Mr D]

In most cases the answer would be 'yes'

Indeed. Its a good method of coping with the quiet times too.

 

[Gecko001]

The ge

Whilst I appreciate no one likes insurance (and it's a dirty word) or in some cases specific policies like these, it's often when you least expect it do you actually need it. If you have lots of savings or someone can help you out then great, but to take the point made earlier of putting food on the table and hoping nothing goes wrong, well that is the reality and the position of most people!

"No one likes insurance"? A bit general and also a little patronising if may say. Most business people will assess the risks they face and take out insurance accordingly. It is just part of operating a business.

 

[Noah]

simply wanting the money in but not wanting to pay out.

Do you pay for things you don't have to? Are you running a business or a charity?

 

[estwig]

I hate insurance, largely a waste of money sold on fear.

Income protection insurance for the self-employed is one of the biggest cons going.

 

[Mr D]

Do you pay for things you don't have to? Are you running a business or a charity?

Just checked both companies house and charity commission. A business it appears.

Just thinking through the bills, cannot think of anything we are paying for that we don't have to. Business insurance, accountants fees, stock, storage, postage, boxes and envelopes.
Anything there that we don't have to pay?

 

[The Byre]

my other car was stolen off my drive. (On a side note, anyone that has a VW and particularly keyless entry please be advised and read up on this). On both occasions the insurer has bent over backwards to assist and paid out without any hassle whatsoever.

And the whole issue of this 'keyless-entry' theft problem could be stopped dead in its tracks, by the insurance companies refusing to insure any such cars against theft.

They fully and knowingly took on the risk of insuring cars that can be remotely opened by anyone with a laptop and a cheap transmitter.

a waste of money sold on fear.

The answer is to eliminate or minimise those risks, rather than throwing good money at insurance companies.

 

[Mr D]

And the whole issue of this 'keyless-entry' theft problem could be stopped dead in its tracks, by the insurance companies refusing to insure any such cars against theft.

They fully and knowingly took on the risk of insuring cars that can be remotely opened by anyone with a laptop and a cheap transmitter.


The answer is to eliminate or minimise those risks, rather than throwing good money at insurance companies.

The keyed entry cars didn't use to be much better.

Some things have improved slightly. Car security takes a bit more now if wanting to avoid window smash.

 

[Winston23]

The ge

"No one likes insurance"? A bit general and also a little patronising if may say. Most business people will assess the risks they face and take out insurance accordingly. It is just part of operating a business.

Maybe some people do like insurance although i'm yet to come across a client that bounces in to my office jumping for joy saying sign me up, I love insurance! My point is it's a need rather than want. No one likes the fact they pay insurance premiums. You can't touch it, taste it, and you get nothing in return if you don't claim for the duration of the policy. No one wants to be in the position where they may need, I certainly don't want to be.

The fact that such a low percentage of people have IP would suggest in many cases a business owner hasn't fully assessed the risk. I realize that may sound very patronising but that is by no means my intention. As a business owner you may have relevant cover and key person but if you are a self-employed individual OR an individual in employment that has no sick pay provision, then you are wide open should anything unexpected happen.

 

[Newchodge]

Perhaps the widespread lies that were told about payment protection insurance has had some effect on people's perceptions.

 

[estwig]

The answer is to eliminate or minimise those risks, rather than throwing good money at insurance companies.

Absolutely!

 

[Socio South West]

The problem I have with this type of insurance is that a successful claim revolves almost entirely around having an unblemished health history in tandem with a correct medical opinion. There are a myriad of loopholes that the providers of such insurance can and do exploit to avoid paying out to customers who they have sold the insurance to on the basis of such conditions being covered.

I prefer to use my accountant to minimise the amount of tax I pay, and from the savings on that have made a series of small easily realisable investments to cover the immediate needs should I need income as a result of being unable to work - and not money into someone else's pocket if I never need to claim.

 

[estwig]

Maybe some people do like insurance although i'm yet to come across a client that bounces in to my office jumping for joy saying sign me up, I love insurance! My point is it's a need rather than want. No one likes the fact they pay insurance premiums. You can't touch it, taste it, and you get nothing in return if you don't claim for the duration of the policy. No one wants to be in the position where they may need, I certainly don't want to be.

The fact that such a low percentage of people have IP would suggest in many cases a business owner hasn't fully assessed the risk. I realize that may sound very patronising but that is by no means my intention. As a business owner you may have relevant cover and key person but if you are a self-employed individual OR an individual in employment that has no sick pay provision, then you are wide open should anything unexpected happen.

Nothing but a con sold on fear.
There are far more effective ways to mitigate risk, than giving hard earned to an insurance company.

 

[Winston23]

Still no reason to throw money at a company that has probably zero intention of giving me any value for money.
If I died at work tomorrow my employer would pay out no question. If I had life insurance they'd create considerable legal problems for my wife to resolve (probably helps that her brother is married to a solicitor) before they'd maybe pay out.
Two companies neither one wanting me to die but one acting in good faith and one …. based on actions by life insurance companies over the years …. simply wanting the money in but not wanting to pay out.[/QUOTE]

Not everyone is lucky enough to have death in service but it's always helpful if you do. What happens if you leave the job and go elsewhere? What if have to leave for health reasons? Could your employer pull the benefit? Would the sum assured pay off your mortgage? I'm by no means asking you as an individual those questions I'm just pointing out the limitations.

If you had 'life insurance' then I would advise you consider putting it in to trust thus ring-fencing the sum outside of your estate but much more importantly giving your wife access to the funds quickly, usually within weeks outside the requirement of probate (assuming you've selected her as the beneficiary). A trust would do the opposite of complicating things, it would simplify. If anyone has life insurance and it's not in trust then I'm happy to send some information over to you. That is not a transaction by the way. I do not get paid for putting someones policy in to trust, my client or otherwise but when life insurance is sold it is concerning that a trust is not at very least discussed or recommended.

 

[Winston23]

Nothing but a con sold on fear.
There are far more effective ways to mitigate risk, than giving hard earned to an insurance company.

A con is an interesting choice of wording.

Insurance is sold on the realities of life and death not fear.

What would be the better way's of mitigating risk?

 

[Mr D]

Maybe some people do like insurance although i'm yet to come across a client that bounces in to my office jumping for joy saying sign me up, I love insurance! My point is it's a need rather than want. No one likes the fact they pay insurance premiums. You can't touch it, taste it, and you get nothing in return if you don't claim for the duration of the policy. No one wants to be in the position where they may need, I certainly don't want to be.

The fact that such a low percentage of people have IP would suggest in many cases a business owner hasn't fully assessed the risk. I realize that may sound very patronising but that is by no means my intention. As a business owner you may have relevant cover and key person but if you are a self-employed individual OR an individual in employment that has no sick pay provision, then you are wide open should anything unexpected happen.

Or that they fully assessed the risk and made a decision based on that.

Just because you disagree with their decision does not make it invalid.

 

[Mr D]

If you had 'life insurance' then I would advise you consider putting it in to trust thus ring-fencing the sum outside of your estate but much more importantly giving your wife access to the funds quickly, usually within weeks outside the requirement of probate (assuming you've selected her as the beneficiary). A trust would do the opposite of complicating things, it would simplify. If anyone has life insurance and it's not in trust then I'm happy to send some information over to you. That is not a transaction by the way. I do not get paid for putting someones policy in to trust, my client or otherwise but when life insurance is sold it is concerning that a trust is not at very least discussed or recommended.

She'd have the same problems inside or outside a trust.
We've been over the problems with experts as it has come up before. Its not trust issues, its proving something.

 

[Gecko001]

What would be the better way's of mitigating risk?

There are several ways to mitigate risk. Here are just a few:

- Build up sufficient funds for a rainy day. Not all business run without spare capital.
- Go into to partnership. The risk will be shared.
- Form a limited company, so that your personal finances will be substantially protected.
- Have a passive income stream, such as royalties from intellectual property, advertising income from websites and billboards or have a buy to let.

 

[Winston23]

I agree, all are valid forms of mitigating risk but in reality and in general terms, they don't apply to your average self-employed or employed person. I would include myself in that by the way. It can be very difficult to save these days and the last thing you want is for that hard earned money you've saved to flutter away on paying the bills because you can't work.

I don't know whether we are conflating individuals with big or bigger business and business owners as the two are very different and have different protection requirements.

I am predominately talking about small business, sole traders and employees that rely on steady income and without it are in deep water.

Setting up a limited company doesn't alleviate personal responsibility nor does it impact your personal outgoings for example mortgage and such like. Those bills still need to be paid irrespective. If you can't work then you can't work and having a ltd company doesn't change that. A partnership has it's positives but if both partners are fee earners then it maybe prudent to have the right protection in place if one cannot work. The assumption would be that you of course have a partner to go in to business with in the first place. Having a passive income in reality may only apply to very small percentage of people.

For the record I'm just playing Devils advocate with some of the reply's. People are more than entitled to their opinion whether I or others agree or disagree. I'm simply dispelling some common myths that seem to keep being raised an again it's all healthy debate.

 

[Winston23]

Perhaps the widespread lies that were told about payment protection insurance has had some effect on people's perceptions.

Fair point and as far as I'm aware a particular sting was self-employed people were not allowed to claim on PPI? The banks and others were more than happy to sell it to them though!

Poor products, poorly sold, poor claiming process and in my case added without me knowing!

 

[Newchodge]

It can be very difficult to save these days and the last thing you want is for that hard earned money you've saved to flutter away on paying the bills because you can't work.

Surely that is the point. If it is very difficult to save, when you can vary the amount you save if circumstances change, and the money always remains yours, it is even more difficult to give away a fixed sum every month to someone else, money that you may never see again. Suppose you take out one of these policies and the business has an unexpected cost to meet, meaning you cannot afford the premiums for the next year. Your only option is to cancel the policy, losing everything you have paid out.

 

[Newchodge]

Fair point and as far as I'm aware a particular sting was self-employed people were not allowed to claim on PPI? The banks and others were more than happy to sell it to them though!

Poor products, poorly sold, poor claiming process and in my case added without me knowing!

Exactly, or I couldn't claim because I had a decent company sick pay scheme, so, had I known, I would have refused it.

 

[tony84]

I have only scanned through this thread as I am heading out in a minute but I wanted to jump in on this as there seems to be a massively negative opinion of income protection, some of which is very wrong.

@Mr D - Your card insurance is actually a form of PPI (the most common one was Sentinel). PPI is underwritten at point of claim. Income Protection is underwritten at point of application so the only reason it would not pay out is if you no longer fit the criteria (ie you were not working when you became ill) or you lied/withheld some important facts when applying.

Which leads me on to my next point, insurers are no longer allowed to reject a claim purely on the basis of you lying/withholding information on the application form. They would have to do a "proportionate" payment. As an example, if you declared you were fit an healthy but you were 25 stone and being 25 stone would result in a 25% loading, then they would only pay out say 75% of the amount you were maybe expecting because you have effectively underpaid on the premiums.

The average income protection claim according to Aviva is close to 5 years and they paid out on nearly 90% of claims:
https://www.aviva.co.uk/adviser/documents/view/pt15849c.pdf

96% with LV - https://www.lv.com/adviser/claims/claims-performance

The reason it is expensive is because it pays out.

It does not necessarily need to be expensive, I have income protection. I do not cover my full income, I cover enough to pay my bills and ensure my family can stay in our home should I be unable to work. I also have it deferred for 6 months and I have 6 months wages set aside should I need it.

Realistically, nobody will be able to afford to fully cover themselves, but it is a case of having something in place. I spend about £15 a month on my income protection policy, I know if I cant work I will keep a roof over my head. There wont be any holidays to Vegas and there wont be as many meals out and chances are my car would end up being sold, but I will have a roof over my head and my little girls head and thats my only concern.

As for the cost, it is impossible to say it is around x% of your income as it varies on:
Age,
Occupation,
Health,
Whether or not you smoke

I am a MASSIVE believer in income protection. I used to work in a life office and I have seen the difference all of these insurances make but of income protection, life insurance and critical illness, the only one I have is income protection.

Thats not because I am self employed, I actually think everyone should consider it. Without wanting to sound like some cheesy salesman (and I dont do this in my meetings) you have insurance for your TV, your pet, your phone but the one thing that pays for all of them is not insured.

Just my opinion anyway.

 

[Mr D]

Surely that is the point. If it is very difficult to save, when you can vary the amount you save if circumstances change, and the money always remains yours, it is even more difficult to give away a fixed sum every month to someone else, money that you may never see again. Suppose you take out one of these policies and the business has an unexpected cost to meet, meaning you cannot afford the premiums for the next year. Your only option is to cancel the policy, losing everything you have paid out.

Agreed.
If I had carried on paying into the insurance I had, without it increasing, I would have paid £16k over the years.
And there were lean times when money was tight - not needing to draw on savings but needing to cut bills.
Going from a grand a month personal income to £75 a month personal income is hard. Have had bigger changes since but paying out a policy on low income doesn't make sense when saving still does.

 

[Winston23]

Thanks tony84. I'm not necessarily trying to convince anyone i'm simply stating the facts and it's up to everyone else to decide. When I first came across the 7% sat a while ago I couldn't believe it!

A lot of what has been said implies premiums are sky high and hundreds of pounds when the reality for Joe Blogg's is very different. As the gentlemen points out a perfectly adequate policy can cost as little as £15 (or less in some cases). How many months of putting £15 in to savings would take to cover the cost of your outgoings for 1 month? Racking it up in my mind personally maybe 8 years!

 

[Mr D]

Thanks tony84. I'm not necessarily trying to convince anyone i'm simply stating the facts and it's up to everyone else to decide. When I first came across the 7% sat a while ago I couldn't believe it!

A lot of what has been said implies premiums are sky high and hundreds of pounds when the reality for Joe Blogg's is very different. As the gentlemen points out a perfectly adequate policy can cost as little as £15 (or less in some cases). How many months of putting £15 in to savings would take to cover the cost of your outgoings for 1 month? Racking it up in my mind personally maybe 8 years!

Cheapest quote I've had that met requirements was £70.

Quotes that don't cover pre existing conditions (so you would think would be cheaper) since then are more expensive.

 

[Winston23]

Cheapest quote I've had that met requirements was £70.

Quotes that don't cover pre existing conditions (so you would think would be cheaper) since then are more expensive.

Like all insurances those critical factors of age, heath, occupation, smoker/none smoker and the amount you want covered have a significant impact on premiums.

Again if your a contractor earning 35k a year and you want max coverage i.e 60-70% of your income (tax free) it will be significantly lower in price than someone wanting to cover an 80 or 100k salary.

The same contractor who is 30 will be paying significantly less than someone doing the same role earning the same money but is 45.

There are so many variables so to generalise that is 'expensive' simply isn't true. Not you specifically Mr D but numerous other posts seem to make the claim.

 

[Mr D]

Like all insurances those critical factors of age, heath, occupation, smoker/none smoker and the amount you want covered have a significant impact on premiums.

Again if your a contractor earning 35k a year and you want max coverage i.e 60-70% of your income (tax free) it will be significantly lower in price than someone wanting to cover an 80 or 100k salary.

The same contractor who is 30 will be paying significantly less than someone doing the same role earning the same money but is 45.

There are so many variables so to generalise that is 'expensive' simply isn't true. Not you specifically Mr D but numerous other posts seem to make the claim.

So say 25% of net income for the premium? Would you class that as an expensive premium to pay each month?

My experience of insurance appears very different than yours.

 

[Winston23]

£70 a month to cover 25% of your income? Well that would depend. If you're covering 25% of a gross income of say £50,000 and you're 35 then yes that would seem very high. I don't know your age, job, the age up to which you have selected your cover, the deferred period before it pays out. If you mean for example a gross income of £200,000 or £250,000 and you're mid 30's then no. If you were in your 50's lets say when you want to take out the policy then naturally the premiums will be higher.

Without knowing anymore detail it's difficult to say.

Everything has to be considered on it's individual merits which is why people shouldn't be put off if 1 person tells them it's expensive. It's up to the individual to look in to it and decide based on their own circumstances.