19/03/2024
**LONG POST BUT SO IMPORTANT SO PLEASE READ**
I had a conversation with a customer yesterday so I just want to highlight and stress the importance of the correct protection.
I was a qualified protection only adviser before I became a mortgage broker so you're in the best hands with me when completing a review. I'm not going to recommend a policy that you don't need.
CUSTOMER:
- 37 years old
- Married with 2 children
- Self employed floor fitter
- Never had income protection
- £10,000 savings
Customer advised they don't want to use savings towards the mortgage because if they broke their arm, they couldn't work so needed to keep that money incase.
Due to the nature of their job, they wouldn't be able to work if they broke a bone, whereas I could so we discussed the difference highlighted the risk.
They explained they have enough critical illness cover to pay off their mortgage.
Great, however that policy isn't going to pay out for a broken bone or time off for something like a back injury which due to age and job, they are more likely to claim on.
Also, a critical illness policy isn't intended to replace lost income so if they did get a critical illness, with the absence of an income protection policy, it's highly unlikely they will use the funds to pay off the mortgage meaning if they did subsequently pass away, they have left their partner without any cover (their policy is joint) and with a full mortgage to pay.
Now I'm not slagging off critical illness policies or saying you shouldn't have them, but I am saying income protection should come first, especially for a self employed manual worker.
If you're self employed and pay yourself a salary and/or dividends you can benefit from executive income protection. Because of the tax on the benefit, you can insure a higher percentage of your income (80%) in comparison to personal policies (60%). Executive IP is classed as a business expense and is therefore usually tax-deductible against corporation tax.
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