Income Protection  

Lack of IP flexibility 'worrying' as self-employment grows

Insurers protecting profits

Alan Lakey, director of CIExpert, said he was “all for greater flexibility”. He added: “It can allow somebody to retain a valuable product that otherwise might have to be cancelled.”

Lakey said insurers’ resistance to last minute income protection policy changes might be that they don’t represent value for money from their perspective.

“Or it could be that some insurers don’t want the initial cost of what appears to be a small top up with limited profitability,” he added.

Alan Knowles, managing director at Cura Financial services, said: “Most providers include the option to increase the cover without further underwriting as long as it's applied for within a set period from the pay increase.”

To do this, clients need proof of the salary or mortgage increase. “The challenge is getting it within the 3-6 months of the event which is the normal limit. Some have the cap where you can't do this in the last five years, but not all.”

There will always be risk

Peter Hamilton, Zurich’s market engagement head who was recently appointed by the government to oversee the insurance sector’s disability and accessibility work, said one of the challenges facing insurers was the extent to which their systems were modern enough to handle flexibility in policies.

“It differs between insurance companies. Zurich has a more modern system, so you can change the monthly benefit and the amount of income which is insured. But some changes require underwriting if the risk is increasing.”

Hamilton used the example of someone with a damaged spine who has a greater chance of being off work. “You can decrease very easily, but increasing is where the risk comes in.”

“Whilst here at Zurich we’ve fixed the systems piece, risk will always be there. That’s why we don’t sell IP directly to consumers. It needs an adviser,” said Hamilton.

He admitted “there will be some older products on the market where system constraints may make it harder to change elements such as the benefit amount, the term of the plan or the deferred period”.

In the future, Hamilton said he could conceive of a plan - once more of the UK has taken up open banking - which automatically changed as earnings change.

ruby.hinchliffe@ft.com