Nationwide is offering a 10% discount on its Lifestyle Protector product. Will the policy pay out when you need it and does it offer value for money?.
Nationwide has just reduced the price of its insurance to protect your income in case you're made redundant, or in case you can't work due to illness or injury, or both.
Many of you will immediately realise that this is a form of payment protection insurance, the much derided insurance that has been sold to millions of people who can't use it or can't afford it.
Banks are in the process of compensating hundreds of thousands of individuals for mis-selling it, and if you have a mortgage, credit card or loan I urge you to look into whether you should get some money back.
The terms and conditions have often been very poor and the insurance has usually been hideously over-priced, particularly when offered by banks and many other major institutions.
Some policies are worthwhile
That said, if you're worried about how you'll pay the bills if you lose your job or fall ill for a long time, an insurance to protect you against that is a good idea – provided the small print and price are right.
Some stand-alone insurers have been selling these policies with much better terms and conditions for years, and at one-tenth of the price – which shows the hideous mark-up that most financial institutions have been benefiting from.
Nationwide bravely restarts selling the insurance
Nationwide has a reputation for treating its customers fairly and it's clear from the volume of small print I've read over the years that it generally does offer better terms and conditions in its products.
I don't recall reading the building society's PPI contract before banks recently started grudgingly compensating customers who were mis-sold the insurance. However, complaints against Nationwide for PPI are relatively small for its size, amounting to just tens of millions over the past year.
This might be partly accounted for by the fact Nationwide stopped selling the insurance quickly in 2007, when the mis-selling problems became widely known.
Since then, it has bravely re-entered the market and last week it reduced the price, so let's look at whether this is worth buying now.
The basic deal looks pretty normal
Nationwide calls its product Lifestyle Protector. You can choose for it to pay up to 60% of your pre-tax income every month for six to 12 months if you're made redundant and sign a Jobseeker’s agreement, or become unemployed to become a full-time carer. Alternatively or additionally, you could get the same if you fall ill or are injured and are unable to work.
The more cover you want, the more it costs. Cost is also linked to your health, age, whether you smoke, and your job.
You can choose cover that pays you from the 15th day after you can’t work or, if you have some savings, you could choose a waiting period of up to 180 days in return for lower premiums.
If you choose, e.g. a 60-day waiting period, you'll have to wait another 30 days before you're paid, because you're paid monthly in arrears.
So far, these are all normal terms, but Nationwide adds a little life insurance – up to £30,000, but probably far less on average. While nice, this probably just complicates things. Unless you need life insurance and have already decided to buy it, I wouldn't take that into account. Remember to compare overall costs with shopping around for life insurance too.
The exclusions are quite normal
Let’s turn to the exclusions – which is where the problems usually lie.
You won't be covered if:
- You're out of work due to medical conditions that you’ve suffered before buying the insurance.
- You’re made redundant and you had good reason to suspect that could happen before starting the policy.
- You won’t be covered at all for unemployment if it happens in the first few months of starting the policy. This is called the exclusion period, but don’t confuse it with the aforementioned waiting period. Nationwide doesn’t specify its exclusion period until you get your personal policy schedule, but a normal exclusion period is a whopping six months. That’s an important exclusion.
- You might have a similar exclusion period for sickness, or specific sicknesses. This might be more or less than six months.
You have to claim quickly when the time comes, and re-negotiate your contract if you change your job, form of employment (e.g. full-time to fixed contract) or smoking status.
You can buy PPI if you’re self-employed, but in my view the terms and conditions are too stringent for most self-employed folk.
Those of you with fixed-term contracts have other small print to be wary of, so read the documents! One of the big ones is you have to have been working for 24 months straight for the same employer.
Although I’ve outlined the major exclusions, there are plenty more terms and conditions, so make sure you read the policy document and policy summary.
Is the price worth paying?
There are plenty of exclusions to watch out for, but I think they're quite reasonable provided you understand them, you still think you could claim when the time comes – and, most importantly, provided those limitations are reflected in the price.
You might pay £36.06pm to Nationwide to get benefits of £1,000pm. For my test quotes, I was looking at a 30-year old non-smoker in good health doing a not-very-strenuous job, who wants a 30-day waiting period for illness and injury claims and 90 days for unemployment claims.
You should not use these 30/90 day terms as a template if you get quotes. Consider your own situation and finances instead, i.e. how long you could last without income, to decide your own waiting periods.
The cheapest, stand-alone policies five years ago were quite a bit cheaper than this, but that was before our economic woes. Back then, by my best estimates, those cheaper policies were probably paying back to customers in claims a very high proportion of the premiums received. This is in stark contrast to most bank PPI.
However, today’s higher prices, in my opinion, look like they could still be reasonable. With the chances of redundancy and stress leave much higher in these poor economic times, it could be that the cost is justifiable, particularly if you’re worried and have little savings to tide you over in times of trouble.
How the insurance compares
I’ve compared Nationwide with one of its main competitors, Synergy Financial Products, which offers similar terms and conditions, perhaps slightly worse. You can buy PPI from Synergy through brokers only.
|
Monthly benefit |
Nationwide's monthly premium (1st year) |
Synergy Financial Products |
|
£300 |
£8.39 |
£10.80 |
|
£600 |
£19.22 |
£21.60 |
|
£900 |
£28.84 |
£32.40 |
|
£1,000 |
£36.06 |
£36.00 |
|
£1,200 |
£43.25 |
£43.20 |
|
£1,500 |
£54.09 |
£54.00 |
In the first year, Nationwide is markedly cheaper if you select up to £900 in benefits per month. After that its 10% discount expires, but in following years it is still cheaper, provided the premium doesn't rise much faster than Synergy’s.
If you choose to receive £1,000 of benefits per month or more, Nationwide is very slightly cheaper in the first year, but when the 10% discount expires, Synergy could be cheaper unless it raises its premiums significantly.
Remember alternatives
Unfortunately, this insurance could tie you in to higher prices in following years, because switching will mean you face long exclusion periods again, and you might have trouble getting cover for medical conditions you picked up during the previous year. Those are pretty nasty catches.
If you have large savings, or can build a big savings pot, it's generally better to do this than buy this insurance, particularly for unemployment.
In my opinion, for those of you wanting to protect yourself from illness and injury, permanent health insurance does the same as PPI but better, over a longer period, and generally at a good price. It also frequently comes with fixed premiums.
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