ABI fears in wake of benefits decision
INSURANCE TIMES - 22ND JANUARY 2002
Millions of creditor policies will be virtually worthless unless insurance payments are excluded from income benefit, the ABI warns.
The concern follows a ruling by the Benefits Agency which slashed a Durham man’s Jobseeker Allowance to just £3 because he receives £157 from and insurance policy cover a car loan.
ABI deputy director general, Tony Baker, comments: “It is penalising the prudent and goes against everything the Government is trying to do in terms of Welfare State reform.
“Money that should go to pay the car loan or credit card debt will have to be spent instead on living costs and the policyholder will still be left with the debt when he or she does get a job.
“It has always been the case that income from all sources – other than excluded sources – can be taken into account by the Benefits Agency in deciding Income Support, Jobseekers Allowance etc.
“Insurance is not one of the exclusions but in practice it has not been taken into account.”
He adds that part of mortgage protection cover is excluded and payments are not included if they are made direct to the lender.
Baker hopes the Government will agree that the current position is a non sense and changes the regulations so that all insurance payments are excluded from benefit calculations. Alternatively, he believes insurance companies will have to revise their policies to make the payment to the lender rather than the policyholder.
Baker continues: “We can do that but it may discourage people from taking out insurance and it will be an administrative burden on the industry.
“It may also take some time to achieve because if someone takes out a five year loan, he or she takes out a policy for the full five years.
“So, this would mean mid term changes and companies will, presumably, have to get the policyholder’s agreement to that.
“It could be an administrative nightmare.”
The ABI says there are 15 million creditor policies in force with a premium income of £1.7bn a year.
But accident, sickness and unemployment insurance specialist Burgesses believes the Benefits Agency is mis-interpreting its own rules.
Burgesses’ Simon Burgess is adamant that payment protection for contractual loans or debts should not be included as ‘income’ – irrespective of whether the benefit goes to the policyholder or a third party.
And Burgess adds: “My Lloyd’s underwriters have agreed to make good any deductions and then claim it back against Social Services.”
