When you buy something, you always get a little booklet with all the terms and conditions in it. Do you ever read them? I know I don’t, I just take product out of the box and throw everything else away. Afterall, I know largely what the product does, what does the small print matter? It’s the same with financial products, you know what it is designed to do, so when you get the policy documents and the ton of paperwork that comes with it, you just stick it in a drawer.
I recently went over Income Protection‘s terms and conditions for the products offered by the five providers in Ireland, Aviva, Friends First, Irish Life, New Ireland and Royal London. While the main offering of the product is the same i.e. they all insure your salary should you be unable to work, there are some interesting differences hidden in the small print, some good, some bad and some downright ugly.
Income Protection – The Good
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, like a lot of people, you have suffered a decrease in earnings over the last number of years 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.
Recuperation location. Four 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 Western Europe, Australia, Canada, Hong Kong, New Zealand, Singapore, South Africa, United Arab Emirates or USA.
Proportionate benefit. All five 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.
Unemployment. Both Aviva and New Ireland offer a limited level of cover if you become unemployed before you go out on a claim.
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.
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.
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
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.
Exclusions. Irish Life & Royal London 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.
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.
Income Protection – The Ugly
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?
Irish Life may send someone to visit your house, unannounced, whilst you are out on a claim. This does happen too.
Own occupation. Income protection is supposed to insure your salary if you cannot do your job. Irish Life reserve the right to stop your benefits if you refuse to partake in a career change programme.
Friends First reserve the right to reduce your benefit proportionately if you reside in another EU country that has a cheaper cost of living (they will only pay this benefit for 13 weeks in any 1 year and 39 weeks in total anyway).
Friends First 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”.
Friends First 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.
Royal London will cease paying out if your business stops trading, enters into liquidation or administration while being out on a claim.
After reading this, does your income protection cover do everything you want it to do?
Updated on 26 January 2015 to reflect Royal London offering income protection