Income Protection Insurance
Many life offices also offer income protection insurance which in the past was known as permanent health insurance. This cover provides benefits when the person insured is unable to work due to accident or sickness. The benefit is usually paid as a regular weekly or monthly payment. The policy covers the inability to work and not the insured persons death. The policy is usually non cancellable so long as the premiums continue to be paid and the policy conditions are complied with.
Income Protection Insurance Cover
The income protection insurance only covers the insured whilst he/she is incapacitated as defined in the policy wording. A typical definition would be “Incapacity for the purpose of this policy means that the insured is totally unable by reasons of sickness or accident to follow the occupation stated in this policy and is not following any other occupation”.
The policy schedule will state the insured person’s occupation and the life office has to be notified of any changes in occupation. Some offices do not require a specific occupation to be stated but simply refer to the occupation engaged in immediately prior to incapacity or any other occupation. Some offices say that if the insured has no occupation then he/she must be confined to their house and certified as being so by a medical practitioner appointed and approved by the life office.
Income Protection Insurance Deferred Period
Most income protection polices will only pay after the insured person has been incapacitated in excess of a certain prescribed period. The longer the deferred period the cheaper the policy. Differed periods may for example run from one month up to a year. If a long deferred period is chosen most life offices do not apply the deferred period again if the same incapacity cause reappears.
Some offices will allow a stepped benefits approach to tie in with employers who pay their staff say full pay for the first six months and then half pay for the next six months.
Income Protection Insurance Proportionate Benefit
In some case the insured person may not be able to fully return to their named occupation but could be able to undertake a different occupation. This might be the case where the previous occupation was of a manual nature or required certain dexterity. A proportionate benefit clause would encourage the insured person to take a lower paid and alternative occupation. With a proportionate benefit clause the income benefit is proportionately reduced in line with the loss of earning from the specified occupation and the alternative occupation.
Limitation of Benefit
To avoid a situation where the insured would be better off by being unable to continue their specified occupation the insurers often limit the benefit to between 50% and 75% of the insured average monthly earning in the previous 12 months prior to incapacity. Some insurers also add state benefits and employer sick pay into the equation. Some offices may even use a lower maximum benefit especially where the insured person was a very high earner.
So despite what benefit is written into the policy the limitation clause may reduce it further if it applied.
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Exclusions in Income Protection Insurance cover