Income Protection Policies Flashcards
Key features of Income Protection (IP) policy (4)
Pays out weekly or monthly income when the insured becomes unable to work due to ill health
Anyone between 18-60 years old can take a policy out
Generally the policy ends at the retirement date, but no later than their 70th birthday
Insurers will pay the benefit due to them after the end of a deferred period, and then in monthly arrears after that
What are the two clauses that IP policies may have to encourage the insured to go back to work?
Rehabilitation Benefit: is a proportionately reduced level of benefit if someone only returns part time to work
Proportionate Benefit: Provides the insured with monthly amounts equivalent to the reduction in their earnings 12 months before incapacity
What IP policy is appropriate for self employed people?
Day one and back to day one cover. These policies pay out weekly and can help with cash flow issues for self employed.
What are the 3 types of occupation cover?
Own occupation: Payable if they can’t perform their current role (have highest premiums)
Suited occupation: Payable if they can’t perform their current or similar role
Any occupation: Payable only if the individual cannot perform any role or occupation
Key features of a Critical Illness Cover (CIC)
Pays a cash lump sum on a diagnosis of an invasive critical illness
Relatively expensive policy
Can be stand alone or combined with life assurance
Can add other benefits such as index linked, waiver of premiums, life cover buy back, and children’s cover
Key features of Personal Accident and Sickness (PAS) Insurance
Simply pays out a cash lump sum if the insured suffers a serious injury or accident
Most contracts are annual, but can be taken out for a shorter period
No tax on PAS benefits
Key features of Private Medical Insurance
Provides cover against costs of medical treatment such as practitioner fees, investigations and accommodation costs
PMI is for acute conditions, not chronic conditions
The higher the excess, the lower the premiums
Three types of PMI policies
Basic (cover does not include outpatient treatments, home nursing and private ambulance services)
Mid range (cover includes consultant fees, diagnostic tests, and services such as physiotherapy – often to a set limit, psychiatric cover may also be included)
Comprehensive (May include alternative medicine, dental treatment, travel abroad and cash payments for nights spent as an NHS patient. Policies also may cover a whole family, not just one individual)
What is moratorium underwriting?
Involves excluding pre existing conditions from cover for a number of years, though this may mean at the point of claim they are rejected for withholding information
When comparing the relative costs of guaranteed versus reviewable premiums on critical illness policies:
Guaranteed premiums can be twice as much as reviewable premiums
A self-employed plumber is considering taking out mortgage payment protection insurance. His unemployment cover is only covered in the event of…
Bankruptcy
What happens to the premiums if the deferred period is longer?
The premiums are cheaper
3 types of Income Protection policy?
Guaranteed: Premiums remain constant throughout the contract
Reviewable: The insurer reviews the premiums in light of claims history and health status
Renewable: Short term policies, usually for 5 years, with a guaranteed renewal at expiry. You may renew the contract for a further five years and the insurer cannot decline to continue to cover.
How might the sum assured change on Critical Illness Cover (CIC) policies?
The policy may pay 10% of the sum insured if the condition is less serious, rising to 50% or 100% for the most severe conditions.
How do reviewable CIC policies work?
They are reviewed every 5/10 years, and the rates are based on advances in medical science, not on the health of the client nor individual circumstances.
