Learning Objective 6 Flashcards
Income Protection (21 cards)
What is income protection designed for?
- Designed to pay a regular income if the insured is unable to work due to a long term illness/incapacity
- Once in force, the provider cannot cancel as long as premiums are paid and all other conditions are met
- They also cannot increase premiums after a claim
What is the need for income protection?
- Protect against loss of earnings
- Kicks in after employer support ceases
- Intended to replace lost income, not increase
- Income/expenditure dependent
Types of IP policies
Standard Income Protection
- Pays out after set defferal period
- Until return to work, policy expiration or death
- Usually a % of gross income
Types of IP policies
Limited Term
- Set term e.g. 5 years
- Cheaper premiums compared to standard
Types of IP policies
Day 1 / Back to day 1
- Aimed at self employed
- Either begins immediately, or back dates pay after a set period of time
Types of IP policies
Group IP
- Often a 26 week deferred period to align with SSP
- On a ‘free cover’ basis (no u/w)
- Benefits are paid to the company, then paid as a salary
IP product features
What are the 4 incapacity categories?
- Own occupation
- Suited occupation
- Any occupation
- Home maker
Incapacity categories
Own Occupation
- Covers person not being able to do their own job
- Most popular category
Incapacity categories
Suited occupation
- Claim could be refused if person could do a similar job that they are trained to do
Incapacity categories
Any occupation
- Only pays out if unable to work any job
- Cheapest plan
Incapacity categories
Home maker
- Protection for a house person with no defined income
- operates using the ‘Activities of daily living’ (ADL’s) basis
What is the deferred period?
- The waiting period before any benefits are paid. Would usually tie in with any employer sick pay.
- Longer the deferred period, the cheaper the policy
Policy features
Proportionate benefits
- A top up if someone returns to work in another capacity.
- e.g. Builder unable to work but returns to a lower paid office job. This would top up their income to what they were earning before
Policy features
Rehab benefits
Top up if someone returns to work on reduced hours
Indexation - Increase options
- Benefits increase each year to account for inflation
- Either by CPI/RPI or NAEI
- Or could be a set amount p.a.
- No further u/w required
Product features
Waiver of premium
Premiums for the IP are covered whilst person is incapacitated
Can IP benefits effect state/means tested benefits?
Yes
Most policies deduct a level of state disability benefits
How is IP underwritten?
Looks at mobidity rather than mortality
Factors that can effect underwriting
- Mobidity risk - Effect on premiums
- Age - Older client = higher premiums
- Deferred period - Longer = cheaper
- Term - Longer term = higher premiums
- Smoking status
- Escalation options - Such as indexation
Claims
Exclusions on claims
- Alcohol / drug abuse
- Criminal acts
- Non disclosed hazardous past times
- Failure to follow medical advice
- Pregnancy complications
Would benefits be paid if client doesn’t live in UK?
- Yes, as long as they live within the ‘free limits’
- UK, EEA, most of the western world
- If outside these limits, either a restricted level of benefits or cancellation of policy
