The Self-Employed Designer Who Wants to Cancel Income Protection
Mark, 41, is a self-employed graphic designer. He is married to Elena, 39, who earns €18,000 part-time. They have two children aged 8 and 11 and a €260,000 repayment mortgage with 24 years left. Mark's net profit last year was €68,000. His only protection is a 7-year-old income protection policy paying 50% of his original €60,000 income after a 13-week deferral, with a five-year maximum benefit period and no indexation; the premium is €85 per month. He also has decreasing term life cover of €150,000 linked to the mortgage, and €10,000 in savings. Mark was recently diagnosed with high blood pressure, now controlled with medication, and his father had a heart attack at 52. He wants to cancel the income protection to free €85 per month for a private pension. He says 'I've never claimed, and the state will look after us'.
1. Assess the adequacy of Mark's existing protection and the risks of cancellation.
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The policy is inadequate but valuable. It pays 50% of €60,000, or €30,000 a year, against current net profit of €68,000. The five-year maximum benefit period means that after five years the family could face a permanent income gap while the mortgage still has 24 years to run. The 13-week deferral is dangerous: €10,000 of savings is only about six to eight weeks of household expenses once the mortgage and family costs are included. There is no indexation, so the €30,000 benefit has already been eroded by inflation.
Cancelling would leave no disability cover at all. Reapplying later is not straightforward: high blood pressure and a family history of early heart disease are likely to lead to exclusions, a loading, or a decline. The existing policy was underwritten when he was 34 and may contain terms he could not obtain today. State sickness benefits are typically modest, means-tested, and time-limited; they will not replace €68,000 of profit or keep a €260,000 mortgage on track. Cancellation is therefore a high-risk false economy.
2. What alternative actions would you recommend within his €85 budget, and what underwriting issues must be disclosed?
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Do not cancel. Keep the policy in force and look for premium relief without losing cover: ask the insurer whether increasing the deferral from 13 to 26 weeks would reduce the premium, but explain that any change may trigger new underwriting. If a new policy is considered, disclose the hypertension diagnosis, medication, blood-pressure readings, family history, and any other medical advice. Non-disclosure could void a claim.
Within the €85 budget: first build the emergency fund to at least three months of essential outgoings, because the 13-week deferral is currently unfunded. Second, review the mortgage life cover: €150,000 decreasing term may not clear a €260,000 mortgage if Mark dies early. Third, check whether the income protection definition is own-occupation or any-occupation; own-occupation is more valuable for a designer. Fourth, redirect €85 from discretionary spending to the pension rather than from protection. If no discretionary spending exists, delay the pension increase, not the cover.
3. How would you explain the 'state will look after us' assumption using numbers?
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Use a simple gap calculation. Assume state sickness support might provide a modest weekly amount for a limited period and is means-tested against savings and household income. Compare that with the mortgage alone at roughly €1,300 a month, plus utilities, food, transport, and school costs. If Mark stopped earning, Elena's €18,000 would not cover the mortgage and family spending. The existing policy would pay about €2,500 a month for up to five years, still leaving a shortfall against €68,000 of profit, but far better than state support alone.
Then show the risk of cancelling: no €2,500 a month, no own-occupation cover, and a new application likely to be medically rated. Frame the €85 as the cost of transferring a risk the family cannot self-insure with €10,000 of savings. The conversation should be about the consequences of a six-month illness, not about loyalty to an insurer.