Income Protection Benefit – Overview
Pays out a monthly benefit in the event of illness or incapacity, rendering the customer unable to continue working in their occupation (if employed or self-employed) for a period of time that exceeds the chosen deferred period, resulting in a loss of earnings or the customer is unable to carry out at least 3 of the 6 listed activities of daily living (if considered a house person – working less than 16 hours per week).
2 versions of the plan are available – standard or low cost. The standard plan can also be set up on a Stepped Benefit basis (2 deferred periods, 2 levels of benefit).
If the customer is hospitalised for more than 7 consecutive nights the plan will pay out a percentage of the monthly benefit for each subsequent night spent in hospital (restrictions apply to the maximum amount payable and length of time payable).
This plan offers guaranteed premiums.
Where a monthly benefit is required to provide financial support against a loss of income in order to aid or maintain the lifestyle of the policyholder and/or the lifestyle of their family.
Where a monthly benefit is required to provide support for mortgage repayments and can be up-sold to cover lifestyle as well.
Whilst the purchase reason is selected as part of the application process there is no requirement for the individual to use the monthly benefit for a predetermined reason ie the benefit would not have to be used for mortgage repayments if they had selected ‘mortgage’ as the purchase reason.
The reason for purchase is less important in terms of the overall basis of the target market. Whether the rationale behind the purchase is to provide an income to help maintain or support the family, or for the primary purpose to be to cover mortgage repayments the key factor relates to the need of the customer and that need being the requirement of replacement income. There is all likelihood that the individual could be single without dependents or a mortgage but their need for replacement income is still relevant.
The product is not available via the Business reason for purchase.
There are 2 versions of the policy available, standard version and the low cost option.
This covers the customer until their selected retirement date (the end date of the policy) which means that a claim can be made that can last for any duration after the deferred period ends up to the end of the policy. This is irrespective of their employment classification ie employed, self-employed or considered a houseperson. Multiple claims are possible throughout the term of the policy.
It is possible to set the plan up on a Stepped Benefit basis, which may be appropriate for those that receive a staggered reduction in income ie 6 months full pay → 6 months half pay → income ceases.
Low cost option
This version of the policy is available to those looking for a cheaper premium and limited benefit payment period (pays out for a maximum period of 24 months for any single claim. Must return to work for 6 months before further claim for same/related cause can be made. For house persons policy ends after reaching total of 24 monthly benefit payments). For individuals classified as employed or self-employed, multiple claims are possible each for a maximum period of 24 months.
Income Protection Benefit is not to be confused with Critical Illness Cover, which pays out a lump sum benefit if diagnosed with one of the critical illnesses that are covered by those policies.
Suitable if customers
- Have a requirement to protect their income in the event of becoming ill or incapacitated that subsequently leads to an inability to work and as a consequence suffer a loss of income.
- Are not suffering from any medical conditions that would inadvertently result in cover not being available.
- Are employed, self-employed or considered a house person (from the perspective of the terms and conditions of the policy working less than 16 hours per week).
- Don't have a form of income replacement in place that would prevent Income Protection Benefit plan in paying out, in the event of a claim ie Group Income Protection through their employer, that provides a monthly benefit if ill or incapacitated and unable to work.
- Earn a level of income for which reliance on state benefits would not provide a suitable level of replacement income.
- Have an acceptable occupation based on the perspective of our underwriting philosophy and reinsurance terms.
- Won’t, can’t, or are not prepared to rely on state benefit payments to provide income replacement.
- Whom the deferred periods available on the plan (4, 13, 26 or 52 weeks) are suitable for their needs.
- Who in the event of becoming ill or incapacitated that subsequently leads to an inability to work, and as a consequence suffer a loss of income at differing proportions and need two different levels of monthly benefit payment (applies to Stepped Benefit only).
- Require or are prepared to take a plan that provides a monthly benefit for a maximum duration of 2 years per claim, or if considered a houseperson a plan that provides a monthly benefit for a maximum duration of 2 years after which the policy would end (applies to the low cost option only).
- Are not looking to protect against unemployment.
- Are not looking to protect against death, terminal or critical illness through the means of a lump sum pay-out.
- Have not already retired.
- Are willing to be underwritten medically at outset and financially underwritten at point of claim.
- Can afford the relevant monthly premiums applicable to the policy and are UK resident at the outset.
Unsuitable if customers
- Don't need to protect their income, in the event of becoming ill or incapacitated that subsequently leads to an inability to work and as a consequence suffer a loss of income or are prepared to self-insure (ie have savings they are willing to use in the event of suffering a loss of income).
- Are on the lower echelon of the earnings scale and for whom reliance on state benefits may be more appropriate.
- Are suffering from any medical conditions that would inadvertently result in cover not being available.
- Are not employed, self-employed or considered a house person (from the perspective of the terms and conditions of the policy ie working less than 16 hours per week).
- Already have a form of income replacement in place ie Group Income Protection through their employer that provides a monthly benefit if ill or incapacitated and unable to work negating the need for additional protection.
- Have an unacceptable occupation based on the perspective of our underwriting philosophy and reinsurance terms.
- Will, can, or are prepared to rely on state benefit payments to provide income replacement.
- Those that require a deferred period that is not available on the plan (ie a duration that is not 4, 13, 26, or 52 weeks).
- Do not require or are not prepared to take a plan that provides a monthly benefit for a maximum duration of 2 years per claim, or if considered a house person a plan that provides a monthly benefit for a maximum duration of 2 years after which the policy would end (applies to the low cost option only)
- Are looking to protect against unemployment only.
- Are looking to protect against death, terminal or critical illness through the means of a lump sum pay-out.
- Those that have already retired.
- Someone not willing to be underwritten medically at outset and financially underwritten at point of claim.
- Are not UK residents at the outset of the policy cannot afford the relevant monthly premiums applicable to the policy.
Amount of Cover
- No minimum monthly benefit. Driven by minimum premium.
- Maximum benefit is £200,000 per annum (£16,666.67 per month) or for a houseperson £20,000 per annum (£1,666.67 per month).
- The amount of cover remains the same throughout the policy term.
- The minimum term allowed is 5 years (if over 45 when the policy starts).
- The maximum term allowed dependent on cessation age.
- The minimum age to take out a policy is 18.
- The minimum age at the end of the policy is 50.
- The maximum age for buying a policy is before their 60th birthday.
- Policy must end by their 70th birthday.
- Payable monthly or annually by Direct Debit.
- Deferred Period - This is the initial period when a client is unable to work when we do not pay benefit. They can choose for the deferred period to be either 4, 13, 26 or 52 weeks.
- Stepped Benefit - This may reduce premiums as there are two levels of benefit can be chosen with two different deferred periods. This first level of benefit can be set to a lower level with a deferred period that coincides with the reduction in sick pay from an employer. The second level of benefit is paid out at a later deferred period, when sick pay stops altogether. Not available with the Low Cost Option.
- Low Cost Option - This will reduce premiums as with this option the benefit for any individual claim is limited to 24 months. Multiple claims can be made. For a houseperson, after the monthly benefit has been paid for 24 months, which does not need to be consecutive, the policy will end. Low Cost Option is cheaper than full cover, but is not available with Stepped Benefit.
Benefits automatically included
- Changing your policy (Previously known as Guaranteed Insurability Option)
- Continuous Cover - Cover will continue if your client goes on maternity/paternity/adoption leave, becomes unemployed or goes on a career break.
- Hospitalisation Benefit - A payment of 1/30th of the benefit will be made for each additional night the client spends in hospital after staying there for 7 consecutive nights.
- Income Guarantee - If the client needs to make a claim, and their salary is lower than it was when they bought the product, the monthly benefit we pay will be based on the lower of £1,500 per month or the monthly benefit at the start of their policy. This could be made up of a combination of continuing income alongside the monthly benefit.
- Life Cover - If the insured person dies during the length of the plan, we'll pay out an amount equal to their annual premium, or 12 times the monthly premium.
- Linked Claims - If, on returning to work, the client becomes incapacitated within 12 months from the same or related cause, payment of the monthly benefit will resume immediately.
- Proportionate Benefit - If, following a claim, the client returns to work in a different job or a lower income, as a direct result of the illness or incapacity, an appropriately reduced monthly benefit will be payable.
- Waiver of Premium (WOP)
NHS doctors, nurses and surgeons
If your client is employed by the NHS, as a doctor, nurse or surgeon – we can provide special terms for these individuals in order to match their sick pay structure should they come to claim within their first 5 years of employment with the NHS.
The plan should be set up on a stepped benefit basis with a 26 and 52 week deferred period split, this matches their sick pay structure after 5 completed years of service.
Should your client need to make a claim before completing 5 years service, we will be able to match their situation at the time and start paying the monthly benefit when their NHS sick pay reduces or stops.
This option should only be used to cover their earnings through the NHS for that specific employment and will not cover any additional earnings received from a private medical practice.
In the event of a claim your client should notify us of their illness/incapacity as soon as possible, so that we can obtain all the relevant and necessary evidence needed to support the claim.
We can only provide this offering if the policy has been set up with a stepped benefit of 26 and 52 weeks. Restrictions and limits relating to the maximum allowable benefit still apply.
Current NHS sick pay structure
- 1st year of service – 1 month full pay and 2 months half pay
- 2nd year of service – 2 months full pay and 2 months half pay
- 3rd year of service – 4 months full pay and 4 months half pay
- 4th and 5th years of service – 5 months full pay and 5 months half pay
- After completing 5 years of service – 6 months full pay and 6 months half pay
- Please see the Product Profiles link for full details of the benefits and limitations of the Income Protection Benefit policy - Product Profiles