The principle behind income protection (IP) is remarkably simple. It’s designed to work when your client can’t.
Yet when it comes to claim, all might not be as expected. And as an adviser, you still need to do your homework.
A crucial factor for any claimant is the ‘definition of incapacity’ on which their contract is based. Over the last year, we’ve seen the industry tide move away from ‘suited’ and ‘any occupation’ and ‘task based’ definitions towards ‘own occupation’.
Own occupation is the best definition for the client – if they can’t do their own job, the policy will pay out.
It is also the most straightforward to explain, simplest to understand and easiest to claim on.
All good, right? Yes... although as an adviser, you still need to be on your toes and wary of hidden nasties.
LV= has recently moved to 100% own occupation for all new LV= IP policies. Own occupation is the only definition of sickness we use – simple.
Best comes at a price
While own occupation is the best definition, it can also prove more expensive for those in higher risk occupations.
So affordability might be an issue and you might need to tailor the amount, features or duration of cover to provide a more affordable solution.
Specialist IP providers offer age-costed cover, which can make the initial outlay for those in higher risk occupations much more affordable.
With LV= you can consider our budget IP plan. It has all the same quality features as the full plan, yet any claim will be paid for a maximum for 2 years. And the cost? Up to 70% less.
Own occupation, but for how long?
Some providers claim to be 100% own occupation. But once a claim has been in payment for a period, they may then switch to another ‘lesser’ definition or reduce cover, or both. Others will pay on an own occupation basis for the full claim.
If your client is in paid work when they claim, own occupation is the only definition LV= use. And we will pay on this basis for the full claim.
Who’s covered?
Offering own occupation has repercussions for providers too.
To provide more extensive own occupation coverage, some have actually reduced the number of occupations they insure.
With the LV= move to 100% own occupation, we actually increased the number of occupations we insure by 225.
A job is no longer for life, so what happens if your client moves on or takes a break?
Today, the average person changes jobs 10-15 times during their career, so check out the provider’s requirements should your client change their job.
Their cover may become void.
With LV=, if your client changes to a ‘riskier’ job, their premium will stay the same. They don’t have to tell us they’ve changed job, but they could pay less if they move to a less risky role.
Taking a break
As well as changing careers, more people are taking career breaks nowadays. Some providers won’t pay if your client needs to claim but isn’t in paid work, some may use a different definition of sickness and/or only pay out for a limited period.
With LV=, we’ll pay on an own occupation basis if your client claims during the first year of a career break or becoming a homemaker, and for the full period of a claim. If they claim after being on a career break or homemaker for a year or more, we’ll use our simplified homemaker definition of sickness.
People are working for longer nowadays
Not everyone is able to retire when they want to; they still have bills to pay and so need to keep working. How long can your clients have cover for?
With LV=, we offer cover on an own occupation basis to a maximum age at expiry of 70, across the board.
The dangers of over insurance
Yes, it is possible to have too much insurance! With income protection, there must be a financial incentive for your client to return to work and all providers apply some form of maximum benefit formula.
Yet a client’s income might vary. If your client income dies fluctuate, it’s worth checking out the provider’s approach should your client claim.
At LV=, we’ll still pay your client’s full amount of cover, as long as the difference isn’t more than 10% than the maximum they’re allowed. And check out the LV= Minimum Income Guarantee that’s designed to offer more certainty benefit for clients whose income goes up and down.
Homemakers
While homemakers aren’t in paid work, they play have an invaluable role in running the home. If they fall ill, how will everyday family life continue? Some providers won’t offer IP to homemakers, or won’t pay out if your client becomes a homemaker later down the line.
LV= accepts IP applications from homemakers. We’ve simplified our definition of sickness for homemakers and increased maximum cover to £1,500 a month.
Your client’s income is their most valuable asset; it pays for their lifestyle today, for tomorrow and for their retirement.
When advising your client about how to protect it with the one insurance policy every working person should have, make sure it’s the right one and that it really works when they can’t.
