On the subject of premiums, one of the most important considerations for intermediaries and their clients is the benefit payment period, which is the length of time after a claim that a policy will be paid. They are essentially split into two types: short term and full term. The former will cover somewhere between one and five years, whereas the latter will pay out until the earlier of retirement or the policyholder returning to work.
As a result, a shorter benefit payment period will attract lower premiums. But this must be weighed against less comprehensive cover.
Julie Higman, proposition manager of protection propositions at Aviva, says that a factor in IP’s increasing popularity has been a shift towards less comprehensive cover. She says: “There has been more focus across the industry on IP, especially with the positive impact from the Seven families campaign, and there has been more focus on going out and speaking to advisers about its importance.
“However, while sales have increased, there is more of a demand for limited payment terms as opposed to full cover until retirement. Therefore, while customers may not have full cover, limited benefit is still better than no cover.”
Two other notable elements are the percentage of salary insured and the deferred period. The maximum salary percentage hovers around the 60 per cent mark – as benefits are free of income tax this should mean payments are broadly neutral to salary. Deferred periods range from one day to 104 weeks; these work most efficiently when dovetailed with the point at which employer sick benefits cease. For the self-employed, lower deferred periods should be favoured since company sick pay is unlikely to feature.
The information that usually garners the greatest attention – monthly premiums – can be found in Table 2. Premiums can be paid in two ways: guaranteed and reviewable. The former will remain fixed throughout the plan, but the latter can be changed at certain points. This often results in an increase, and as such means that premiums, when compared like-for-like, are generally slightly lower than those guaranteed are outset.
Choosing a plan solely based on cost can be problematic, however, as it can be at the expense of the required cover.
Holloway Friendly’s Short Term plan is a good example. The reason for its monthly costs being well below the average, across the board, is that the policy pays for a maximum of two years.
Overall costs compared with our survey four years ago show some slight deviations, but nothing particularly significant. This is, however, quite telling in its own way, as premiums would usually be expected to creep up year on year.
