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F E Smith
F E Smith, Advocate
Category: Law
Satisfied Customers: 10647
Experience:  I have been practising for 30 years.
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I have an Income Protection Policy with Legal and General

Customer Question

Hello,I have an Income Protection Policy with Legal and General and am currently claiming as I have been recently unable to work due to an illness.I am insured for £2,000 per month but I am only receiving £1,500 per month. This is because my self employed income dipped due to my illness as I was progressively unable to work.Legal and General therefore said I did not have sufficient income to support a claim for £2,000, and should only receive £1,500.I have long felt this is quite unfair, as the reason for my lower income was the illness itself.I would like a lawyer to look at my policy document and take a view on whether L&G are entitled to do this please.I can forward the full policy document but the key line is:"b) If you are gainfully self-employed at the point of incapacity the total amount of monthly benefit payable in
any one year will be limited to 60% of your total yearly self-employed earnings up to, and including, £60,000 plus
50% of your yearly self-employed earnings over £60,000. If you were self-employed for 12 months or less, we
will limit your total monthly benefit to 35% of your yearly earnings at the point of incapacity."I have also looked at the Financial Ombudsman's website which suggests that what L&G have done may have been unfair. This is a paste of their guidance:"A self-employed consumer's income is based on their net profit rather than turnover because it needs to take account of expenses they have in running their business. In most cases, their earnings will be assessed on the basis of the previous 12 months - which usually results in a reasonable result.But there are some cases - for example, where we know from medical evidence that the consumer's condition became progressively worse and they struggled to continue working - where the 12-month average does not reflect the consumer's income when they were in good health.An unreasonable result could also arise if a consumer's income fluctuates. For example, a consumer whose earnings depend on commission might earn less during an economic downturn. So their average income in the 12 months before they became disabled may not reflect the income they would receive over a normal economic cycle.In these situations, we may suggest a fair and reasonable approach of taking an average of the consumer's earnings over another period - for example, three years."Thanks,Adam.
Submitted: 16 days ago.
Category: Law
Expert:  F E Smith replied 16 days ago.

Hello for clarification - how long ago did you stop work and start claiming?

Customer: replied 16 days ago.
Hi,
Mid February 2017 is when I had to end my contract, I put in my claim then and it took many months to process but was back dated to February.
Expert:  F E Smith replied 16 days ago.

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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If you still need any point clarifying, I will still reply because the thread does not close.

Best wishes.