How important is own occupation cover for income protection?


    This week Aviva announced it will underwrite all individual income protection policies on an own occupation basis in a bid to “simplify income protection cover and ensure as many claims as possible are paid.”

    The move follows recent changes of a similar nature from Bright Grey and Scottish Provident, although the Aviva moves goes further and will be widely welcomed by advisers.

    Income Protection Insurance, which was also known as permanent health insurance, pays a tax free lump sum in the event of ill health.

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    It replaces part of your income if you are unable to work because of illness or disability and will continue to pay out until you can return to some kind of paid work, reach retirement or pass away, whichever is sooner.

    But just how important is this change to ‘own occupation’?

    Occupation classes

    When searching for the best IP cover available in today’s market it is crucial to understand the client’s occupation and what definition it may fall under if they were to claim.

    This is arguably the most important aspect of the policy, including the premium itself, because it will determine the circumstances in which a claim will be paid.

    Knowing the title of a client’s occupation is one thing, but it is also worth knowing the nature of their work including details of any manual work, driving, working at heights, heavy lifting and so on.

    Different insurers use different definitions of being unable to work, so it is worth spending a bit of time researching and understanding the definitions to ensure the chosen policy would in fact pay out.

    The more traditional providers with will often divide occupations into classes such as class 1, 2, 3 or 4 to define how a claim would be assessed. This also helps define what premium would be charged.

    As examples, typically occupation class 1 would be office workers, class 2 shop assistants, nursery nurses and sales people, class 3 care workers, engineers and teachers, while class 4 would be riskier manual workers, such as working at heights, oil-rigs, excessive driving etc.

    These classes will often determine which level of cover will apply to each policy. Two of them are generally desirable for clients, which are:

    • Own occupation – the ability to carry out your own job

    • Suited occupation – the ability to carry out a job by which you are suitable because of your training and experience

    The ‘suited’ definition exists for a range of reasons and generally covers occupations which have seen a large number of historic claims, such as teaching or the medical industry, which are both known for generating stress-related claims. In this situation primary school teachers, for example, could instead become lecturers, while surgeons could become consultants.

    It also exists for something I have heard referred to as ‘the boss problem’, which is for people who are quite capable of working but cannot get on with their boss (or their colleagues). IP is not designed to pay out in these circumstances so if a client’s boss (rather than their physical ability to do their job) is causing the problem the policy might not be expected to pay out.