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What is the definition of an Income Protection policy?

A long term insurance policy that pays a monthly or weekly income if the insured is unable to work due to illness or incapacity


Income Protection is also known as PHI. Why is this?

This stands for Permanent Health Insurance and it is because it can not be cancelled by the insurer once in force, regardless of number of claims


Income Protection is subject to which regulatory regime?

Insurance Conduct of Business (ICOBS)


Name 2 different types of Income Protection policy and briefly describe the features.

Any 2 from;

• Standard – pays out after a deferred period and continues until the insured returns to work or policy ceases. Max benefit is usually 50-60% for individual policies or up to 75% for employer policies (as they are taxable)
• Limited term – benefit payment period may only be for a limited time (1-5 years)
• Day one/back to day one – for self employed and have no deferred period, i.e. pay out from day one of sickness. Expensive option. Back to day one will have a waiting period but then pays benefit backdated to day one, cheaper than day one cover.
• Investment linked – worked like a unit linked WOL and contain an investment element. Subject to COBS.
• Unemployment insurance – usually written as a separate policy to standard PHI


What are the 3 main types of incapacity definition for Income Protection?

Own occupation

Suited occupation

Any occupation


What is the widest definition of incapacity?

Own occupation


What is the tightest definition of incapacity?

Any occupation


With regard to incapacity categories, what is own occupation?

Unable to do ones own occupation – widest definition on when will pay out


With regard to incapacity categories, what is suited occupation?

Unable to do any occupation to which the insured is suited to through education training or experience


With regard to incapacity categories, what is any occupation?

Unable to do any occupation whatsoever – tightest definition on when wont will pay out


What is the deferred period in respect to Income Protection policies?

The period of time that must elapse before a claim will be paid


Which would be the cheapest Income Protection policy.

A policy with a 4 week deferred period


A policy with a 52 week deferred period

A: 52 weeks.

The longer the deferred period the cheaper the policy (less chance of having to pay out).


What is waiver of premium?

A form of PHI. Usually linked to a pension plan or WOL policy to ensure that premiums are still paid if off work and unable to pay premiums


What is the maximum benefit under an Income Protection plan?

Benefit is usually capped at 50-60% of earnings (Individual).

Benefit could be up to 75% from employer schemes as these are taxable.


How does the medical underwriting of Income Protection differ to Life Assurance?

It is based on morbidity rather than mortality.

This is the likelihood of being ill rather then the likelihood of premature death


The main underwriting considerations for Income Protection policies are?

• Age
• Deferred period
• Term
• Smoking status
• Escalation options


What is significant about the underwriting of all insurance policies since 2012?

They are now based on unisex rates. EU gender directive states no separate male/female rates


Why are there different occupation classes for Income Protection policies?

As different jobs carry different risks.

The risk at work posed to an office worker is much different to that of a trawler fisherman.

The higher the class the higher the risk.


What are examples of Class 1 occupation classes?

Managerial, clerical, administrative, professional.

Least risk


What are examples of Class 2 occupation classes?

Shop workers, skilled light manual, hotel, catering


What are examples of Class 3 occupation classes?

Skilled workers in non-hazardous manual jobs


What are examples of Class 4 occupation classes?

Skilled workers in hazardous jobs and heavy manual workers

Highest risk


How would you go about making a claim on an Income Protection policy?

Inform the insurer and the deferred period will start.

Once it gets to when the claim should be paid insurer may require evidence of illness and proof of earnings.

Will continue till return to work or end of term.

Linked periods of illness don’t typically re-set the deferred period.


What is typically excluded from an Income Protection plan?

• Drugs and alcohol
• Criminal act
• Flying
• Dangerous sports
• AIDS or HIV (unless blood transfusion)
• Self-inflicted
• Failure to follow medical advice
• Pregnancy
• Living abroad (out of the free zone)
• War


How would a group Income Protection policy be taxed?

It is paid tax free to the employer.

Taxed as PAYE in the hands of the employee and allowable to the employer as a business expense.