Explaining long term income protection insurance
- 13TH JULY 2007
Long-term income protection insurance is an innovative new product which aims to combine the most attractive features of both of the more traditional forms of income protection insurance.
Like short-term income protection insurance, it is attractively straightforward to understand and can be arranged immediately without the need to consult professional advice or wait around for a detailed initial underwriting process to be completed.
But, whereas short-term income protection insurance restricts claims benefit payments to an absolute maximum of 12 months, long-term income protection insurance is able to pay-out for up to 30 years.
This means that it can provide a similar longevity of cover to advisory income protection insurance, together with a more immediate pay-out.
Most advisory income protection policies do not pay out claims benefit until the end of an initial ‘deferred period’, which most commonly lasts for either three or six months. But long-term income protection insurance pays out as soon as you have been unable to work for 30 consecutive days and backdates payment until day one.
Benefit payments continue until you are well enough to return to work or, if you fail to recover, right up until your 60th birthday or until the end of the policy’s 30 year term - whichever is sooner.
Applicants are required to complete a brief medical questionnaire and a very small proportion of them will be declined for cover on the basis of their answers to this. But at least the decision will be instant and will not involve having to wait around for several weeks while the insurer writes to your GP or requires you to undergo an independent medical examination – as can happen with advisory income protection insurance.
All applicants accepted pay the same flat premium rate, which disregards factors such as occupation, age, gender and smoking habits. This means that some can pay less than for advisory income protection insurance, which takes such factors into account when calculating premiums, but others can pay more.
All conditions for which you have received medical advice or treatment during the 36 months before your policy started are excluded, but everything else is covered. This can make the cover attractive to those who have the types of conditions than can recur after many years, because these may be permanently excluded by advisory income protection insurers.
Whether long-term income protection insurance or advisory income payment protection insurance is most suitable will depend on individual circumstances, but in most cases long-term income protection insurance is likely to seem better value than short-term income protection insurance.
Having a maximum benefit pay-out of no longer than 12 months arguably fails to provide sufficient peace of mind because, although many claimants will recover within such a time period, there will be some who suffer from much longer-term or permanent conditions.
But long-term income protection insurance does cost slightly more than short-term income protection insurance and some people may feel that their budget will only stretch to the latter. Those declined for long-term income protection insurance may also feel that it is better to have shorter-term cover than one at all.
