How important is own occupation cover for income protection?


    But these definitions are not the problem. The issues come with the myriad other definitions in use, which can be summarised as ‘list-based’ definitions, such as:

    • Activities of daily work (ADW), or work tasks

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    • Activities of daily living (ADL)

    • Functional Ability Tests (FAT)

    These definitions, which should be avoided wherever possible, rely on a list of tasks the policyholder needs to be unable to do.

    For example, the policy may list six tasks from which the claimant would need to be unable to carry out three. These could include walking unaided, climbing the stairs unaided, writing with a pen unaided, and so on. If you can’t walk, climb or write you are clearly in a very bad way.

    It is estimated that around 20 per cent of all IP policies are written on one of these three definitions and while insurers will seek to offer the best definition possible, there may be times when specialist IP insurers should be considered instead.

    Might there be consequences?

    The Aviva move is to be welcomed and will no doubt be matched by other insurers in the future. However, advisers should take a quick look at an insurer’s declined list as well – the list of occupations which are automatically declined cover as this will no doubt increase as a consequence.

    Typically such a list, which all insurers have, would include rock stars, opera singers, fighter pilots etc – extremely high risks where cover would either be provided by the employer or sought through less traditional routes.

    You might not instinctively consider a singer or a guitar hero to be a high risk, but if they’re voice or their vocal range is damaged, or if they harm one finger and can’t play the guitar any more, they are no longer able to do their own job (regardless of any other lifestyle considerations which may be taken into account).

    However, with the market moving towards ever closer to own occupation cover for everyone, one consequence could be that fewer people are insurable, at least with the mainstream providers, including those who do not have an occupation.

    Likewise a further consequence could be price. It is possible, although certainly not definite, that we may see prices increase in future as a result of more people having better cover, although this is arguably a fair price to pay.

    Friendly Societies

    Many of the friendly societies specialise in IP and most already offer the own occupation definition for all policies. Firms such as British Friendly, Exeter Family Friendly, Holloway, Cirencester and more may at first seem more expensive, however the level of cover provided, especially the existence of own occupation cover, can often be much better than traditional insurers.