For anyone who has heard me rattle on about protection planning, they will know I love income protection because of its simplicity and longevity.
Illness does not run to a set timescale, so providing cover that pays for as long as you are unable to work, be it months, years or ever again, can be a great financial safety net for the client and/or their family – subject of course to the deferred period chosen.
Recently though, more providers are offering short-term/restricted claim periods.
These being one year, two years or five years, in addition to the usual full-term claim periods.
These shorter claim periods provide the benefit of lower premiums and sometimes simplified underwriting.
LV has recently launched a budget IP with a 12-month claim period, to add to its budget IP with a 24-month claim period and its full income protection with a full-term claim period offerings.
The 12-month claim option provides the same features as the other plans, including parent and child cover, doctors services, fracture cover, payment of premium during unemployment, and death benefits.
The underwriting remains the same, though the premiums are lower.
Premiums are guaranteed and indexation can be included, as can waiver of premium.
One unique feature with LV is that WOP is taken as a separate add-on to the IP, rather than as standard.
Therefore, after a 12-month claim has been paid, the client could continue to claim under WOP if still off work.
Should a client return to work for more than six months, they can claim again for the same or different illness, subject to a further 12 months.
I understand the need for short term, particularly for budget-sensitive clients.
However, as advisers we have a duty of care to ensure clients fully understand the risks of taking a restricted policy.
Where a client is still unable to work after the claim period has ended, they may find they have simply deferred the financial problem.
Jiten Varsani is a mortgage and protection adviser at London Money Financial Services
