Filling the gap for lost wages

Cover for people without mortgages is available if not abundant, says Edmund Tirbutt standfirsty

MORTGAGE protection insurance, which covers repayments in the event of disability or redundancy for up to one year, has become widely available as a result of the 1994 Budget changes. But home owners are not the only ones at risk.

Those who do not have a mort- gage may still find themselves unable to work. Nevertheless, protection insurance for such people has enjoyed little publicity in comparison. There are only two income protection policies that are not specifically linked to a mortgage or other kind of repayment facility. Both pay out for a maximum of 12 months per claim and their benefits can be spent on anything the policyholder wishes.

The Hamilton Income Protector, provided by Lloyd's broker Hamilton & Wellard (part of the Edgar Hamilton Group), has been available since 1985. Maximum cover is the lesser of 60 per cent of gross monthly income, or pounds 1,000 a month.

It covers against being off work for more than 30 days for accident and sickness, or 60 days for redundancy.

NWS Bank's IncomeCare, available since July 1994, pays out after 60 days for both types of claim. Maximum cover is the lesser of pounds 750 per month or 75 per cent of net monthly income.

Such policies can also suit people with small mortgages. Sarah Roper, a 39-year-old mother of two, is a good example. In March 1991, when working as a business operations manager with a depart- ment store group, she took out pounds 500-a-month cover with Hamilton Income Protector for pounds 30 a month.

"We didn't have much of a mortgage to pay as we had moved to our present house before the property boom," she explains. "My husband had always had a good job as a lawyer and everyone assured me my own job was safe. Nevertheless, I was not leaving anything to chance. The children had entered private education and it was of paramount importance that we didn't have to remove them."

In February 1993, Mrs Roper, along with a number of others, was laid off and she did not start another job until that August. Receipt of a healthy redundancy settlement did not affect her entitlement to policy benefits. Each time she received her pounds 500 cheque, it was accompanied by another claim form.

"All I had to do was take this to the job centre every month to obtain proof that I was registered as unemployed and actively looking for a job," she recalls. "Five hundred pounds a month doesn't make you a millionaire, but believe you me, it makes an awful lot of difference.

"Income was of the uppermost importance, and the nice thing was that it wasn't linked to anything. To be honest, I was surprised how difficult it was to find a scheme like this and have recommended it to several others."

Most UK residents aged between 18 and 60 are eligible to take out income protection if they are able to declare they are in good health and have no knowledge of impending redundancy.

The self-employed, however, are at a disadvantage. NWS Bank's IncomeCare does not insure them. The Hamilton Income Protector does not cover them for redundancy, only for bankruptcy or financial insolvency certified by an accountant.

IncomeCare requires applicants to have been in continuous full-time permanent employment of at least 30 hours a week with the same employer for at least 12 months. The Hamilton Income Protector does not insist that the 12 months are with the same employer.

Both policies exclude those in a position to influence their own redundancy, redundancy of a voluntary nature and that which occurs within the first 180 days of cover commencing.

"Obviously if it was well known a firm was due to lay off a large number of workers, we would be on our guard," admits John Hayes, spokesman for Hamilton & Wellard, "but it's very rare we send back a policy because we can't cover someone."

Income protection is expensive, compared to most mortgage protection. IncomeCare's month- ly premium is 7.6 per cent of monthly benefits selected and Hamilton Income Protector's is 7.25 per cent.

Furthermore, while benefits from mortgage protection policies have been declared tax-free, no announcement has been made regarding the taxation of income protection benefits. Such an announcement is expected later this year. Traditionally, benefits have been understood not to be taxable, and most experts are confident the situation will not change.