Income Protection Products Flashcards
Income protection product
A long-term insurance contract that provides the insured with regular payments during periods of incapacity in return for regular premiums.
This product offers cash benefits, NOT indemnity cover
Main customers for IP products
1) Individuals (particularly the self-employed)
2) Employers
3) Small professional practices
Locum protection insurance
A form of IP cover that provides for the salary of a temporary replacement professional
Waiting period
From the date the policyholder purchases the cover to when it kicks in
Moratorium period
Like a waiting period, but condition-specific
Deferred period
From the date the claim event occurs to when the benefit starts to be paid. A deferred period occurs at the start of each period of incapacity, save where the linked-claims period has been breached.
Initial period
From the date of policy inception to the beginning of the extended period
Extended period
From the end date of the initial period to the expiry of the policy term
Linked-claims period
Between the end of one claim period and some set end date, within which the policyholder can “restart” initial period of cover
Policy term
From the date of policy inception to the date of policy expiry
Premiums may be…
Single
Regular
Guaranteed
Reviewable
Increasing in line with benefits
Waived during periods of benefit payment
Ways to limit benefit payouts to prevent over-insurance
1) Maximum replacement ratios
2) Maximum benefit amounts
3) Deductions for other income received
4) Limits on high salaries
5) Quality training of sales people
6) Regular benefit reviews
7) Clear conditions on over-insurance at the claims stage
Replacement ratio
The ratio of post-claim income to pre-claim income (both net of taxes) taking state welfare benefits and other sources of income into consideration
Financial underwriting
The process of checking the proposer’s income and other circumstances to prevent over-insurance
Types of IP benefit increases
1) Fixed benefits with no increases
2) Increases at a fixed rate
- Same rate both in and out of claim
- Escalate in but not out
- Escalate out but not in
3) Index-linked
Incapacity
Being unable to earn an income as a result of illness or disability
Occupational incapacity criteria
Own/alt/any
And the variations (particularly in the alt category)
Non-occupational (i.e. Functional) criteria of incapacity
ADL - Activities of Daily Living
ADW - Activities of Daily Working
FAT - Functional Assessment Tests
PCA - Personal Capability Assessment
Advantages of non-occupational definitions of incapacity
1) Measures generic level of incapacity
2) Identify generic skills
3) Precisely described
4) Are more easily applicable to those who work but are not paid or those who are temporarily without work
5) Can be applied beyond retirement
6) Can be applied to a wider range of lives
7) Simpler to use only one definition throughout policy term
8) Less subjective
Ways to manage moral hazard
1) Careful policy wording
2) Robust policy conditions
Residual risks
Risks existing after taking into account all other benefits to which a customer is entitled
For any group scheme it is necessary to establish…
1) WHO is eligible for benefits under the scheme
2) the BENEFITS
- by size
- definition of a valid claim
- period of benefit
Partial benefit
A proportionate benefit paid to someone who has returned to work but not at full capacity. Makes total earnings up to insured level
Rehabilitation benefit
A benefit aimed at facilitating rehabilitation for a person who may or may not yet be back at work
E.g. A helpline or payment for reasonable workplace accommodations e.g. a wheelchair ramp
Amounts of Income Protection Benefits
LP BROWSER
Lump sums
Partial benefits
Basics
Replacement ratios
Over-insurance
Waivers of premium
Surrenders
Escalations
Rehabilitation benefits
Options available on IP products
1) GIO
2) Continuation
3) No-claims discount
4) Premium waiver
