The usual maximum amount of cover that you can take out is the greater of 65% of pre-tax income or up to 125% of monthly expenses although not all companies will allow a percentage of expenses. In your particular case it appears that they are limiting this to 60% which is also not unusual.
Many policies will not actually pay out if someone is self-employed even though they self-employed at the time of taking the policy out and it’s one of the reasons that these policies are very often subject to a mis-selling claim.
I know of one company only in the UK who will allow you to pre-validate those expenses or that income which means that if your income drops at the time you have a claim, you will still get paid out the full amount.
It isn’t Legal & Gen however, is just a small company who I happen to be aware of.
Therefore, if your income has dropped at the time you come to make a claim, the amount of benefit that you get will also drop if you can no longer justify the amount of the claim.
Somewhat annoying thing here is that you have still been paying the premiums for the full amount of benefit but only get paid out in your case, three quarters of it.
I appreciate what you are saying that the reason for your lower-income is the illness itself and it’s very common with self-employed policies for that to be the case. You would have been better off having no income at all and getting the full amount of benefit from day one!
Without even looking at the policies (I do have considerable experience of this) I can tell you that they would be entitled to do this.
Although you can make a complaint to the Financial Ombudsman that they should have only charged you three quarters of the premium on the basis that you were only entitled to ¾ of the benefit, it could go either way. It’s certainly worthwhile making the complaint.
The wording on the Financial Ombudsman website is guidance and not a decision. The policy wording is the definitive answer.
I’m sorry, I appreciate this is the answer that you wanted that you appreciate, I’ve already got some experience of this.
Can I clarify anything else for you?
I am happy to answer any specific points arising from this.
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