The three degrees of income protection insurance
- 16TH JUNE 2007
Long-term income protection insurance, which protects you against being unable to work as a result of long-term sickness or injury, has traditionally been highly complex to understand and time-consuming to arrange.
But we have broken the mould. We do not penalise policyholders on grounds of age, gender, smoking habits or occupation. Everyone pays the same flat premium rate of £5 a month per £100 of monthly cover, and monthly benefit payments can be received for up to 30 years in the event of a claim.
Our long-term income protection insurance cover can also be arranged immediately, and benefit payments, which backdate to day one, begin as soon as you have been off work on health grounds for 30 consecutive days. A standard long-term income protection insurance policy, on the other hand, can take weeks to arrange, and different policyholders can be quoted wildly different terms according to their occupation, age, gender and smoking habits.
Furthermore, the more affordable standard policies do not usually start benefit payments until the end of an initial 'deferred period' of six months or - less commonly - three months.
Another potentially huge advantage of our long-term income protection insurance is that it can be much better value for those with poor medical histories. Standard long-term income protection insurance policies normally exclude conditions that existed prior to the commencement of cover (so-called 'pre-existing conditions'), but we only exclude illnesses and injuries that have been evident within 36 months of the start date. Unfortunately, we are unable to accept a small minority of those who apply for this contract on the basis of their answers to a very basic medical questionnaire.
They will, however, still be eligible for our short-term income protection insurance. This works in a similar way to its longer-term counterpart, but the maximum benefit period permitted only up to 12 months. The treatment of pre-existing conditions is also less generous. They are excluded, although the exclusion is waived if you haven't suffered from that condition for two years before the date on which you became unable to work. Short-term income protection insurance costs £3 a month per £100 of monthly cover for a 12 month maximum benefit period and £2.55 a month per £100 for a nine month maximum benefit period. Even shorter-term cover is available for three and six month maximum benefit periods - for £1.35 and £2.10 a month per £100 respectively.
These options can be particularly useful for those who already have a traditional long-term income protection insurance policy and who wish to plug the gap left by the deferred period. But neither long-term income protection insurance nor short-term income protection insurance cover unemployment.
So, for those who require this cover in addition to health insurance, we offer a third option called income payment protection insurance. This works along similar lines to short-term income protection insurance, but includes cover for involuntary unemployment. It also offers only one maximum benefit period - of 12 months. Another important difference from both our long-term income protection insurance and short-term income protection insurance products is that income payment protection insurance has premiums that are age-related.
This means that it can be very good value for anyone aged under 50, and someone in their early 20s can obtain cover for as little as £1.85 per £100 of monthly benefit. But it is important to realise that income payment protection insurance is always likely to represent better value to those in employment than to the self-employed, because the latter are only covered for involuntary unemployment if they permanently cease trading.
Even employed people should be aware that income payment protection insurance does not cover them for voluntary redundancy, so this could be an issue for those who work in industries where it has become a common way of leaving employment.
