In May, the Association of British Insurers (ABI) and Group Risk Development (GRiD) reported that 98.3 per cent of protection claims were paid in 2019, the highest percentage of claims paid on record.
This is an important message because it demonstrates that advances in underwriting processes in recent years, including tele-underwriting and sophisticated online application systems, has reduced the number of declined claims due to non-disclosure.
What is really good news for customers is that the 98.3 per cent of claims paid amounted to some £5.7bn of benefits.
This is real money that has helped people in times of financial distress.
It is a testament to insurers and financial advisers who, day after day, meet with clients and see that their financial vulnerability is addressed and proof positive of the wisdom of taking out life assurance and protection policies.
Income protection insurance, arguably the poor relation to life assurance and critical illness plans never-the-less accounted for £669 million of benefits.
This has helped people who were unable to earn a living due to illness or disability by contributing to their household budgets during their absence from work, not to mention the practical and emotional support afforded by the health and wellbeing services integral to many of these policies now.
2020 – the acid test
It’s not unreasonable to expect similarly good results for 2019, however, there is no doubt that 2020 will prove to be a challenging year for protection, but one that will ultimately prove its worth.
One insurer, LV, reports that up to 30 April, it paid out 146 Covid-19 related claims.
These prompt payments to policyholders with short waiting or deferred periods will have delivered much needed financial support at a difficult time for them and their families.
Fortunately, most people who contract Coronavirus do not die and, while the symptoms can be unpleasant, they recover relatively quickly.
However, for the families of those who sadly have died from the disease, their life assurance will have provided much needed support; and for those sufferers with short waiting period Income Protection, again, it is likely they will have been able to benefit from their protection provision.
Deferred or waiting periods
When setting up an income protection plan, one of the key decisions to be made is what deferred period to choose.
This is the period between when the client is off work to when a claim can be made and the benefits become payable:
- For employed people, it is usual to dovetail the deferred period with the employer’s sickpay scheme.
- Eligible employees who are too ill to work are entitled to Statutory Sick Pay (SSP) from the fourth day of their absence for up to 28 weeks. It is currently just £95.85 per week and paid by the employer.
Research by XpertHR in 2018 found that while 92 per cent of employers offered more than SSP, most only do so for four weeks or less.
For self-employed people, the ideal will most likely be a short deferred period of, perhaps, just one or two weeks, or even day one cover depending on their circumstances.
It is important though, in the event of a claim, that the client has other means to tide them over until the benefit kicks in. This would usually be a cash contingency/buffer or a partner’s continuing income.
So, while for new applications it has been necessary to take steps to manage the risk that Coronavirus presents, the insurers have taken a proportionate response and risen to the challenge of providing cover where they can and supporting existing customers.
Even in these difficult times, income protection insurance retains its value and remains the main plank of protection planning as fundamentally it is our income that underpins our livelihoods.
Source FTA Adviser
For more information, or for a chat about how you can be protecting your income, why not get in touch today.