Advisory income protection insurance
- 13TH JULY 2007
Many people maintain that variety is the spice of life, but being spoilt for choice can bring its own set of problems. This is certainly the case when consumers attempt to buy advisory income protection insurance without seeking appropriate professional help.
The product, which provides a regular tax-free monthly income if the policyholder becomes unable to work as a result of long-term ill health, is sold by a wide range of different providers and each one’s small print can have variations significant enough to have a major impact on value.
Unlike with short-term income protection insurance and long-term income protection insurance, the headline premium price is not all important. The merits of buying through an objective advisory source cannot therefore be stressed highly enough - hence the title ‘advisory income protection insurance’.
How does our service work?
Our service for ensuring that you receive the most appropriate advisory income protection policy is run by highly trained health insurance experts who have no vested interested in recommending one insurer over another. Their aim is to establish whether advisory income payment protection insurance is the most suitable product for you and, if it is, to select the policy most appropriate to your needs from a large panel of leading providers.
Once you make initial contact with the service online, leaving details of your name and telephone number, you should receive a call within 15 minutes from a call centre worker who will confirm your details, ask for a brief indication of what you are looking for, and arrange a telephone interview with a qualified adviser - ideally the same day.
The adviser will conduct a 15 to 20 minute ‘fact find’ in order to gain a sound overview of your circumstances. They will, for example, ask about your age, your occupation, the number of dependants you have, your responsibilities, outgoings and savings levels.
Initial preparation
You will be able to provide the bulk of the information required simply from memory, but there are a couple of subjects on which it may be necessary to do a little preliminary research. Ideally this should be done before contacting the service.
Firstly, those with any existing individual health insurance policies should make sure that they have their details handy. It is not just existing advisory income protection insurance policies or short-term or long-term income protection insurance policies that the adviser will need to know about.
Other policies such as critical illness cover, which pays out a tax-free lump sum if you are diagnosed with one of a stated number of serious conditions, and mortgage payment protection insurance (MPPI), which protects mortgage outgoings for up to a year if you are unable to work because of ill health, will also be relevant.
Secondly, those in employment should enquire from their HR departments whether they already enjoy similar cover to that offered by advisory income protection insurance as a result of being a member of a company-paid income protection insurance scheme. They should also ask HR for details of their company’s short-term sick-pay scheme, because the adviser will need to take this into account when selecting the length of ‘deferred period’ on their advisory income protection policy.
The deferred period
The deferred period is the initial exclusion period between when you become unable to work and when your benefit payments actually start. Although it can be possible to obtain advisory income protection insurance that provides cover from day one – and our service has access to such policies – most policies require you to have a deferred period of some sort in order to keep the premium costs down.
Policies can offer a choice of deferred period of anything between one month and one year, but the shorter the deferred period you have the more it tends to cost. Advisers therefore most commonly tend to recommend having a deferred period of either six months or three months.
The recommendation
After completing the fact find, the adviser will go away and do some research, and
should advisory income protection insurance be considered suitable – will come back within 15 minutes with a policy recommendation, together with the reasons behind it.
Advisers will also recommend the amount of monthly cover you should take, the term of the policy, the length of the deferred period, and whether you should pay slightly extra to take advantage of options on the policy such as the ability to have premium rates that are guaranteed to remain fixed throughout the term and to have cover that rises in line with inflation.
They will ensure that they obtain a policy that pays out on the basis of the best possible definition of occupation. Ideally, this should be one that pays out simply if you are unable to do your own occupation, but not all insurers will grant this for some riskier jobs. So it may be necessary to settle for a policy that pays out if you are unable to carry out any occupation to which you are suited by means of experience, education or training, or one which pays out on the basis of your inability to carry out a number of every day activities.
After making their recommendation, the adviser will send you a copy of the quotation through the post and via email. If you are happy to go head and take out the policy it will handle all the paperwork, including completing your application form and submitting it electronically to the insurance company.
The underwriting process
Whilst our service is able to give quality advice and to remove most of the hassle from the task of selecting a suitable advisory income protection policy, it cannot guarantee to arrange cover immediately.
This is because applicants for advisory income protection policies have to go through an initial underwriting process. If the answers provided in the medical questionnaire on the application form give rise to no particular cause for concern, it is quite possible to be accepted for cover within 48 hours. But the whole process could drag on for several weeks if the insurer decides that it is necessary to write to your GP for further information or requires you to go for an independent medical examination with a doctor in your area.
This is arguably the main downside of advisory income protection insurance, and those who need to arrange cover urgently may wish to consider long-term income protection insurance instead, because this does not involve detailed medical underwriting and can be arranged instantly.
The underwriting process for advisory income protection insurance can also
mean that those considered to have a greater than average chance of claiming – such as older people, smokers and those in high risk occupations - can end up paying considerably more than the advertised headline rates. If so, they could also be better off with long-term income protection insurance, which charges all policyholders the same flat rate, disregarding age, smoking habits, gender and occupation.
Who needs advisory income protection insurance?
The chances of suffering from long-term health problems are far greater than generally realised. Indeed, research by Munich Re has shown that you have around a one in four chance of needing to claim on an advisory income protection insurance policy during your working life.
Unfortunately the safety net leaves plenty to be desired. Exactly what state benefits you will receive if you become too ill to work will depend on factors such as your age, saving levels, housing situation and the number of dependants that you have, but you can guarantee that you will always be struggling.
Anyone who is unwell has quite enough on their plate without also having to contend with financial problems, so many people are likely to conclude that they simply cannot afford to be without advisory income protection insurance.
The product can provide you with the peace of mind of knowing that if you become unable to work as a result of long-term health problems you can receive benefit payments of up to around half your salary. These will normally continue up until the time that you are well enough to return to work or, if you fail to recover, right up until the end of the policy term - which is typically your intended retirement date.
Pre-existing medical conditions
There is, however, one very important exclusion clause be aware of, and that is that insurers are unlikely to cover significant medical conditions that you already have at the time of taking out the policy (so called “pre-existing conditions”). Any exclusions made in this respect will be spelt out at the outset of the policy.
Those who feel they are getting poor value from pre-existing exclusions imposed could find that they are better off with long-term income protection insurance. This excludes any condition that you have received medical treatment or advice for 36 months before the start date of your policy, but covers everything else.
This approach has obvious attractions to someone who has had a condition over three years ago that could possibly recur in the future - as long as they are not one of a small minority turned down for long-term income protection insurance at outset on the basis of their answers to a brief medical questionnaire that must be completed.
