Automatic policy increase - beware

99JellyFingers

Just checked my New Ireland pension details today. Took out three small policies in 1994, (pension, critical illness and phi). Now of course worth zip, but such is life. My problem is that each year the policies were increased to cover for inflation etc. But it seem that this was then channelled to the phi contribution with v small increases applied to Pension and critical illness policies. Thus while the pension contribution has doubled the PHI has quadrupled. Curiously the PHI looks very bad value for me but a nice little earner for New Ireland.

I don't know if this practice normal, it seems rather sharp and underhand to me. Suggest you check any indexed/auto increase on your policies

Toots

Do you mind me asking what your profession is? For certain professions PHI can be shockingly expensive, and they work the cost on how likely it is that an illness or injury could put you out of work for long periods of time. ie, if you lost a leg, but worked in an office, you could potentially go back to work once you had healed and had an appropriate prosthesis fitted, however if you worked as a builder on a site, the likelihood is that you wouldn't be able to return to work and the PHI would have to pay out until you reached retirement age.

My OH is a plumber and his PHI has skyrocketed this year, to the point that we're considering cancelling it as it's working out so expensive.

99JellyFingers

Profession is archaeologist and the cost of phi is too much in current climate, it seems very bad value too. However my annoyance arises with how the increased contributions have been applied, no major increase this year just a steady 5-10% annually since policy start. I assumed the bulk of this would have gone to pension policy or at the very least the balance of contributions would remain unchanged eg 60% to pension, 30% to phi and 10% to critical illness.

Long Onion

Hi OP,

It seems to me that you have three seperate policies - A pension plan, Critical illness cover and PHI. It would also seem from your post that you have opted for indexation with all of these.

Pension premiums usually increase at 3% per annum with indexation, Critical illness and PHI can increase by anything up to 8% per annum, when the compounding effect is taken into account, this can get very expensive very quickly.

If indexation is not chosen on a phi policy, the benefit payable in the event of a claim remains static, should you need to claim on the policy in 20 years, this level of benefit will not be enough to cover your needs. So what to do is the question?

When it comes to Critical Illness and pensions, I am not a huge fan of indexation, with the former, as one gets older, their needs tend to decline (fewer borrowings, dependants becoming less dependant etc) but at the same time, your benefit (and premium) are increasing. With the latter, I rather review my pension performance annually and decide at that point whether or not to increas at that point.

With regards PHI, it is a little less black and white but I would be of the opinion that if you are not seeing the value of the policy, it may be worth reviewing the indextion alement. Many of these policies allow you to increase your benefit by up to 20% every few years without the need to re-submit medical info, perhaps this way you could remain in control of the premiums.

99JellyFingers

You are correct in your review. I think this is what happened, have to say I let it lie and now pay the price. Moral is to take active interest and review policies annually, putting my trust in the machine was an elementary error. Carpe diem can also mean there is a sucker born every day