IFA says affordability a problem for own occupation insurers
Affordability will be a problem for insurers who are trying to introduce more occupations to their own occupation income protection policies, according to Alan Lakey, partner at IFA firm Highclere Financial Services.
Yesterday (19 March), Scottish Provident and Bright Grey announced that it is looking to “substantially increase” the number of jobs that are offered within own occupation income protection cover.
Bright Grey and Scottish Provident said they were making “good progress” reviewing income protection cover.
Although Mr Lakey said this was a positive move and was one of a number of insurers to look into increasing own occupation income protection cover, a major hurdle for them would be in matching prices to those of the friendly societies.
He said: “Three years ago a client came to see me who said he was a garage manager, but after a bit of probing I discovered that he also did some mechanic work on cars which then put him into the high risk category.
“He wanted to have £15,000 a year, payable after four weeks, and would last until he was 65. Only three companies back then would insure him with the prices ranging from £47 to £228.
“The most expensive was offered by a mainstream insurer and not a friendly society and the plan meant that the cost was not increased but not reviewed.
“While its good that Scot Prov has bitten the bullet and is looking at its terms, the terms offered will be too expensive. The cost will be prohibitive as no one will pay over £200 a month for insurance as to their mind it is not that important to spend that kind of cash on it.”
Mr Lakey believes that mainstream insurers need to work in the “same way” as friendly societies, where they have an own occupation cover income protection plan with a guaranteed cost that is affordable.
He said: “But with a mainstream insurer one of these three main components will have to go. The price you pay for that will be increased premiums all year in the plan as there will be an increased risk to cover ourselves in the event where we get it wrong.
“It’s not ideal but it’s a better trade off.”
However, despite recent “embarrassing” cases involving activities in daily life policies, Mr Lakey does not feel there should be a ban.
He said: “I think people should have a choice as they are adults. If they are prepared to take a chance, and that is what ADL policies are, they should be allowed to take it. ADL policies are often the cheaper option.”