Various terms are used when describing income protection policies. For those that are looking to buy income protection, these terms can become confusing. In some cases, this could result in the applicant applying for and getting the wrong income protection plan for their needs. This section hopes to uncover the jargon and explain things in a clear and informative manner.
This gives the insured person the ability to increase the benefit offered by the policy by a limited amount without further underwriting. The amount allowed varies from insurance company to company. Some providers will only allow this in specific circumstances such as Mortgage Increase, Pay Increase, Child Birth / Adoption or Marriage.
Most plans available have the cover period extending to a Terminating Age that is the birthday of the life assured. The typical ages available range from 50 to 65 in 5 year intervals, although many Product Providers offer quotations for intermediate birthdays. The service allows any Terminating Age from 50 to 65, subject to a minimum period of 5 years between this age and the current age next birthday of the life assured.
This is the period of time you have to be sick or injured before any benefit will start accumulating and any claim payment will be made. The longer the Deferment Period selected the cheaper the premium and the less likely you are to claim. Typical deferment periods are 1 month 2 months, 3 months 6 months or 12 months.
This is the amount you set to be your annual income insured or the amount of monthly income you decide to set.
This option refers to the amount of increase you decide to put on the Benefit Level. Typical amounts are 5%, sum insurers will allow you to set the index linking amount to match the RPI (retail price index).
Income Protection Insurance is Broadly speaking offered at a choice of two rates. These are guaranteed and reviewable. A guaranteed premium is exactly that once the policy is started the monthly premiums will remain the same for the life of the policy. These guaranteed premiums will start off higher than the reviewable however the applicant will have peace of mind knowing that in the future the premium will not increase. On the other hand, the reviewable premiums are reviewed by the insurance company at regular intervals. This varies from provider to provider however a standard review period may be every five years. The premium is amended depending on the claim experience of the insurance company and not the policy holder’s age or medical history.
Plans with a limited payment period may be suitable when the benefit is only required to be paid for a maximum termThe maximum term for a mortgage. or where cost is a major factor. Plans of this nature may be offered by a few providers but not all.
A client will be able to make a claim if their incapacity is sufficient to prevent them from working in their current occupation.
A client will not be able to claim unless their incapacity prevents them from carrying out their own occupation, or any other occupation to which they may be suited.
Functional Abilities Tests (FATs) are tests designed to measure a person’s physical ability to carry out a number of specified activities or tasks, perhaps after an accident or an illness. Insurers use various types of Functional Assessment Tests depending on the policy. The two main types are Activities of Daily Living (ADLs) and Activities of Daily Working (ADWs). Functional Assessment Tests have stricter criteria for claiming than for occupationally based definitions, but might be issued to policy holders to provide a less expensive form of protection than is available under one of the occupationally based definitions of incapacity or to those for whom such cover would be unavailable.
A client will not be able to claim unless their incapacity means they are unable to carry out any job whatsoever.
A client will only be able to claim if they are unable to undertake everyday tasks, such as washing and dressing themselves.
If the policyholder makes a claim and then subsequently the life assured engages in a different occupation at a lower income and is unable to follow their usual job as a consequence of incapacity a proportionate benefit may be payable.
A typical calculation to work out the proportional benefit would be for the insurance company to work out the policyholders’ income before claiming and their new income then reducing the benefit payable in the same proportion.
Plans may be arranged with different levels of benefit payable at different deferred periods. These may be used, for example, when a level of sick pay provided by an employer reduces over a period from the date of ceasing work. For example, an employer may pay full pay for 6 months reducing to half pay for a further 18 months. In such a case cover can be arranged at 50% of salary to start 6 months from the beginning of incapacity with an increase to the maximum possible after 2 years.
The terms above are the majority of the jargon that you will come across when researching or applying for income protection insurance. However, if you are unclear on any of the terminologies you see on this site and need any help or clarification just contact us.