Income Payment Protection from British Insurance

While none of us like to be pessimistic, it is a sad fact that none of us are infallible and at any moment in time, we could suddenly become unable to work and be without an income. And this is where income payment protection Insurance can help take away the financial stress associate with such a situation.

Income payment protection is a short-term payment protection insurance that pays benefits over a 12 to 24 month period, depending on the policy terms and conditions, by providing a monthly sum that is tax free and which will help towards replacing your lost earnings in the event of accident, prolonged sickness or involuntary redundancy.

The protection is designed to protect full time employees from lost income and offers support through a monthly payment based on a percentage of normal income for the insured.  It does not replace the entire lost income, but it does supplement a major portion of it.

As with all payment protection insurance policies, income cover does come with a waiting period before you can make a claim. Typically this will be anything between day 30 and 90 after the event – ie the first day that you became unable to work. Do look out for insurance companies who will backdate your claim to the first day.

Income payment protection is sometimes confused with a completely different insurance product that is sometimes referred to by common names.  Income protection is a longer-term, higher premium insurance that sometimes pays benefits up to retirement.  This is quite different than the very short-term nature of income payment cover.  Income payment protection is actually part of a broader umbrella of similar types of cover known as payment protection insurance.

There are three types of standard payment protection.  Along with income payment protection, there are mortgage payment protection insurance, and loan payment protection.  The core benefits and covers offered by each of the payment covers are the same.  There are some modest distinctions among them, however, with regard to the purpose of the insurance and some of the features.

Mortgage payment insurance has the same basic benefits and covers the same events as income payment insurance.  Its purpose is to help keep homeowners from seeing their homes repossessed.  It covers the monthly mortgage obligation for the covered person during the payout term.  Mortgage payment does not cover the full lost income, but it definitely sustains many homeowners through a challenging time.  Mortgage payment protection is often sold in combination with mortgages.  This practice has led to recent scrutiny by consumer advocate groups and financial agencies.

Loan payment insurance is very similar to mortgage protection, but its purpose is a bit broader.  With everyone tightening the belts in the current uncertain economic climate, and with revolving debt and credit card balances on the rise in the UK, many consumers are more and more dependent on income to pay their debts.  Loan payment cover helps cover debt obligations during the period of temporary unemployment.  It also offers a modest income provision to help cover some basic monthly expense requirements.  As with the mortgage payment cover, loan payment protection is routinely sold in combination with loan products by banks and lenders.

Recently, the payment protection insurance industry has come under fire for some common mis-selling practices used by several banks and High Street lenders.  These mis-selling practices were identified by Citizen’s Advice, a leading consumer advocate group, in its recent super complaint to the Office of Fair Trading (OFT).  The group wanted to draw attention to the business processes it felt were creating an unfair insurance environment for consumers, as it was restrictive to open competition.

Most of the allegations in the complaint were tied to unethical selling techniques used to sell loan and insurance products in combination.  It charged that some banks and lenders were pressuring borrowers to acquire insurance in order to obtain the loan they wanted.  More deceptively, it charged lenders were hiding the expensive nature of their premiums by building them into the repayment costs of the loan.  They would not even mention the insurance to the borrower, instead noting it in the fine print of a disclosure document.  Borrowers are sometimes unaware they even have the protection because the spreading of the premiums over the loan repayment period makes them seem less impacting.

Another charge from the complaint brought to light the routine selling of payment cover products to people ineligible to receive benefits.  Ineligible consumers include part time employees, retired people, and people with preexisting medical conditions.  Covered people must be employed full time and the event cannot be related to an existing condition.  Some sellers were selling to people even though they knew they were ineligible.

As a result of the complaint, both the OFT and the Financial Services Authority (FSA) conducted investigations of the payment insurance industry.  The FSA concluded its investigation with fines and sanctions imposed against companies it felt were using unfair selling tactics.  The OFT appointed the Competition Commission to carry out an in depth review of the sector, and it is awaiting the results.

As a result of the sanctions and public scrutiny, some banks and lenders have backed off some of the mis-selling tactics.  Unfortunately, consumer advocates are now trying to protect consumers against similar techniques being used by online lenders to over charge borrowers for insurance premiums.

The good news for consumers is that the attention has created greater awareness of income payment protection benefits and the availability of protection through an independent insurance provider.  Standalone providers specialise in insurance products and are able to offer the best products on the market and typically have rates that are 40 to 80 per cent cheaper than those available through banks and High Street lenders.

Income payment protection, loan payment cover, and mortgage protection insurance are all great product options for consumers   looking for temporary unemployment support.  The State does not offer much, if any, assistance for the unemployed.  It is important for consumers  to be proactive and explore the best product options for them ij order to have the peace of mind that their income is secure, no matter what life throws at them.

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