Income Protection Terms and Conditions Update

Almost 6 years ago, I wrote an article about the terms and conditions of income protection policies. After Friends First and Aviva merged, I thought it was a good idea to read through them again to see what has changed.

There are now four income protection providers in Ireland, Aviva, Irish Life, New Ireland and Royal London. While price is important, going with the cheapest provider is not always the best thing to do. Remember, if you ever go out on a claim for income protection, it is likely that you haven’t worked for at least 3 months and probably won’t be back for a number of years, if at all. You want the least amount of stress at that time.

Income Protection – The Good

1. New Ireland’s confirmed income option. In the event of a claim, the provider will pay out based on your income in the 12 months prior to claim. IF you have suffered a decrease in earnings but haven’t reduced your income protection, you over insured and you will only get up to 75% of your salary in the 12 months before the claim. New Ireland allows you to prove your earnings at proposal stage so if you suffer a pay decrease in future years, they will still pay out the benefits you have actually paid for.
2. Recuperation location. Three of the providers state that if you are on a claim, you must recuperate in Ireland or the UK. If you go abroad, they will only pay 13 weeks benefit a year to a maximum of 39 weeks in the entire life of the policy. Aviva however, allow you to recuperate anywhere in Europe.
3. Proportionate benefit. All of the providers offer this. If you are not able to return to your job full time i.e. reduced capacity or another job and are earning less, they will pay you a proportion of your benefit as well as your salary. Some formulas for calculating the amount of benefit paid are different and result in lower possible pay outs.
4. Hospital benefit. If you are in hospital for over 7 consecutive days, all insurers will pay you 1/365 for your benefit from the 8th day onwards. This is limited to 90 days continuous stay.
5. Unemployment. Both Aviva and New Ireland offer a limited level of cover if you become unemployed before you go out on a claim.
6. New Ireland will allow you to switch an existing personal income protection plan into an executive one and vice versa if your employment situation changes.
7. With all insurers, if you have a relapse within the first 6 months of returning to work, you go straight back on cover with no deferred period to be satisfied.
8. If you haven’t completed the claim process when your deferred period is completed, New Ireland will commence payments anyway, provided you are working with them to complete the claim process and not delaying it.

Income Protection – The Bad

1. Irish Life’s cover increases by 5% each year or CPI if higher. Premiums will increase at a higher amount, which is not disclosed. This level of indexation leads very quickly to being over insured. If you then cancel the increase, you will not be offered another one, you have to ask and it will be subject to underwriting. The indexation of Aviva and Royal London’s policies is 3% cover increase, 3.5% premium increase. New Ireland increases both cover and premium by CPI to a maximum of 3%, whichever is the lower.
2. Exclusions. Irish Life will not pay out in a range of ‘extreme’ activities which includes scuba diving and rock climbing. These are quite common activities that other insurers have no problem insuring against.
3. Friends First will deduct any compensation awarded by the Courts for loss of earnings from the benefit paid out. They decide on the weekly equivalent.
4. For self employed, Irish Life will based your earnings on the average net profit on the previous 3 years prior to a claim.

Income Protection – The Ugly

1. Claims. Irish Life state that you must pay for any certificates, tests and information needed which they need to prove your claim. If you are sick, you will of course go to your doctor and have medical evidence but why should you pay for tests that the insurance company has requested?
2. Irish Life may send someone to visit your house, unannounced, whilst you are out on a claim. This does happen.
3. Aviva will not pay where an identifiable and recognised medical cause does not exist. They go on to say “symptoms of disabilities derived solely or principally from a mental or psychological state (other than anxiety, depression, directly related to stress, anxiety, depression, mental or nervous disorders) shall be deemed not to be recognised medical causes”.
4. Aviva will only pay out on the contraction of HIV if you get it through a blood transfusion, through an infected medical instrument in the normal course of your work or if you got assaulted in Ireland or the UK.
5. Irish Life will cease paying out if your business stops trading, enters into liquidation or administration while being out on a claim.

Some of the providers have improved their contracts since the initial review but there is still room for improvement of others to make me want to recommend their product to a client.

If you have any questions, drop me a line at steven@bluewaterfp.ie