Independent advice on private healthcare
- Health Insurance
- Income Protection Insurance
- Income protection insurance guide
- Choosing the right policy
Choosing the right policy
Choosing the right income protection policy
Be wary of buying income protection from your bank.
Most banks and building societies are tied to a single provider, so you just get their branded deal.
Banks make a lot of money by selling various income protection products, with a mortgage or loan. A few deals are constructed in such a way that you cannot separate the finance and protection. Most deals offer you some cover, which tends to be priced on the high side, and may not suit your individual circumstances. Some even make you pay for it if you do not opt out, while others will suggest it is part of the overall deal. In practice, in the vast majority of cases you have the freedom to look elsewhere in the market for a cheaper and/ or more suitable insurance.
Do not confuse income protection and payment protection.
Payment protection insurance covers the repayments on a mortgage, loan or credit card if you are unable to work due to accident, sickness or unemployment. Many only pay for 12 months. Income protection is longer term and wider protection.
Look at more than just price
The aim is to find the best value-for-money cover, not the cheapest. A cheap policy may offer "budget” cover: with limitations and restrictions. A " budget " cover may be all you need, which is fine if you understand what you do and do not have protection against
It is not critical illness insurance.
Critical Illness (CI) insurance pays out a lump sum if you suffer one of a number of specific medical problems, such as a heart attack, cancer or stroke. However, it doesn't pay out for any medical condition, whereas income protection does.
Critical illness would not pay out for stress, depression or back problems; full income protection policies cover all three.
Stress and mental health problems have overtaken muscoskeletar and back problems as the leading cause of income protection claims.
It is not personal accident and sickness insurance.
Although there is a wide range of policies on the market, personal accident policies tend only to cover physical accidents. When extended to sickness, they usually mean illness.
Income protection policies will often cover illness caused by stress or depression; personal accident and sickness policies rarely do.
Personal accident policies tend to pay out a lump sum, compared to monthly payments under an income protection policy
Tell the whole truth.
If you have or suspect you have a medical condition, a history of problems, or are in a job, which is not acceptable to insurers, then there is a huge temptation to avoid telling the insurer this information.
Even if they do not specifically ask a question relating to something, which could be a problem, you must tell them. On critical illness policies, a horrific one in four claims in recent years has been turned down as the customer omitted the full truth. Thankfully, the income protection industry is not anywhere near that figure. However, many insurers are very tough on people who fail to tell the whole story. If found out, they will certainly refuse to pay all or part of the claim, and may even prosecute you for attempted fraud.
" Non-disclosure" could lead to a claim being denied, just when you need the money the most.
Mention any and all aspects of your medical history, and leave the insurer to decide which are trivial and which are important.
If they have a query on a possible problem they may seek to increase the premium or impose limitations on cover. They may also insist you have a medical check up.
Sending customers to doctors is both time confusing and expensive, so an increasing number of insurers are using tele underwriting. Tele underwriting may be used whether you buy direct or via an advisor. The aim is to avoid confusion, and seek ways of offering you a policy, by a specialist underwriter with medical knowledge conducting an in-depth conversation with you by phone. Insurers are finding that teleunderwriting is more effective at gathering medical information, than a detailed proposal form.
On policies that include unemployment and redundancy, if you suspect that your job is at risk at the time you buy the policy, insurers may refuse to pay a claim. This is a very tricky area nowadays, as few of us can say our job is " safe "
Check your occupation class.
This is an area that causes a lot of confusion, even to insurance experts.
When an insurer decides whether or not to pay your claim, it needs to decide whether you are unable to work. However, some policies require you to be unfit to pursue your own occupation, whereas inferior policies insist that you can only receive benefits if you are unfit to pursue any occupation.
"Own occupation" clauses are far less onerous than "any occupation" clauses, because you may be unfit to do your job, but could, for instance, collect trolleys at the supermarket.
There are three main definitions of being unable to work:
- " usual occupation" unable to do your own job
- " suited occupation' unable to do your own job or a similar one for which you are qualified
- " any occupation" unable to do any kind of paid work
Usual occupation: is the most expensive, but the best
Suited occupation sounds very similar to usual occupation. Insurers may try to argue otherwise, but in real life, it is very hard for anyone with a policy with a " suited occupation" definition to argue that they should not take any low paid work on offer. Basically, if you can read and write, you can get a minimum wage job; modern Disability Laws mean that employers should not turn away people who have become disabled in any way.
For policy profiles, " suited occupation " has been regarded as
" any occupation “; the theoretical differences vanishes on real claims.
The more honest " any occupation " definition has the problem that if you are a skilled worker or professional who has an injury which means you can do some work at a lower salary but not your previous, work, then the policy does not pay up. Insurers do not pay the difference between your former salary and your new one; while getting state benefits will be difficult.
If during the term of your policy you change occupation, you must usually tell the insurer. If you were a shop assistant when taking the cover out, but are a roofer or fireman when you claim, insurers will not pay up.
Check online forms
Check online forms when applying for loan or credit online. Sometimes insurance is selected by default and you will need to change this option if you don't want to buy it.
If buying from a bank or lender -Find out whether the policy is a single or regular premium. If you buy a single premium policy you pay a lump sum of 3-5 years' worth of premiums in advance. This amount is added to the sum you borrow and attracts interest, so you'll be paying more over the long run.
Check what you will get back if you cancel the policy or repay the loan early.
Insurance regulator FSA plans to offer comparative tables of payment protection plan insurances from March 2008
This will include ones linked to loans and stand alone ones.
The comparison will be fairly basic, not a full product comparison
The FSA will not include long- term income protection products which are often far better value than short-term ones.
The FSA has come under fire for comparison tables it has on other products, for not making it clear which product name they are referring to, and not updating details quickly.