Financial Protection

This type of insurance is payable when an individual is unable to work due to long term ill health or disability.

The facts regarding the likelihood of an individual suffering such an occurrence are startling: -

• 2.4 million people were claiming incapacity benefit in November 2003, of which almost 2/3rds were male. (Source: Office for National Statistics 2006)
• Over 2 million people have been off work sick for 6 months or more and may never be able to return to work. (Source: Department for Work & Pensions 2006)
• 27,000 people each year leave work permanently as a result of injury or ill health. (Source: Department for Work & Pensions 2006)
• Workers in the UK are 3 times more likely to be off work for more than 3 months due to illness and injury than to die. (Source: Cover Magazine July 2005)

There are a variety of points to consider when effecting this insurance.

Occupation – A client’s occupation will be banded usually into one of typically 4 different occupation classes. Professionals and other non manual occupations will be pleased to note that they are regarded by most insurers as low risk and are generally found in Class 1. At the other extreme are class 4 occupations, which will include higher risk, manually intensive roles, e.g. builders.

Definition of Illness – In a large proportion of cases, this will be an own occupation definition, i.e. the benefit will become payable in the event that you are unable to carryout the duties of your own current occupation. For higher risk occupations, such definitions can extend to those expected by reason of training or indeed to carrying out any occupation. The view adopted towards this can impact on the decision of which insurer you should apply to.

Level of Benefit – Most insurers offer a maximum of 50% of earnings, although there are ones which may provide more. A client’s income structure is also particularly important in the choice of provider due to the variance of insurers' definition of allowable earnings for such purposes. Due care should be taken to ensure you know whether benefit levels are determined on salary alone or also if dividends are taken into consideration and whether these are in respect of the insured only or include spouse’s or partner's dividends.
We would usually recommend that a form of indexation of benefit in be adopted to ensure the chosen benefit level keeps pace with inflation.

Deferred Period – This is the period which must elapse from the date of diagnosis of an illness or occurrence of an accident before the benefit shall become payable. Insurers offer a range of terms from 4 weeks, 8 weeks, 13 weeks, 26 weeks and finally upto 52 weeks. The selected term will largely be geared around the length of time that sick pay is paid from a prospective employer, starting as such entitlements reduce or end.  For self-employed clients, where income will largely cease as soon as they cannot work, the level of personal savings or company retained profits shall dictate what period of absence can be endured financially without such insurance.

Retirement Age – Unlike Accident & Sickness cover, which typically pays for a maximum of 12 or 24 months, income protection insurance will, if the absence due to illness or accident persists, continue to pay through to the selected retirement age. This can be 50, 55, 60 or 65. Both your personal goals and how your current financial plans are on track towards meeting those objectives will determine the appropriate retirement age.

If your current circumstances give you cause to think that this insurance is not necessary, then think of it more of a lifestyle protector, acting as a preserver of your financial objectives and ensuring that if you were to be struck by such an event that your goals remain attainable.

For clients that employ others, such insurance can also be effected to enable the company to meet the sick pay liability arising from an absent employee.