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Income protection insurers must up their game

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Profile photo of Martyn Saville Martyn Saville
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I think most of us should have income protection insurance. Yet in reality, very few of us do. So why are we still so distrusting of income protection insurance providers?

Many income protection providers pay out on more than 90% of the claims made to them – one of the highest payout rates of all insurance products.

Yet, the reputation of income protection is being undermined by those insurers that still sell cover to their customers based on ‘activities of daily living’ (ADL).

ADL policies aren’t up to scratch

ADL policies only pay out if you’re unable to carry out basic tasks associated with daily living such as, say, walking a certain distance, dressing yourself or being able to read 18-point print. To make a successful claim on an ADL income protection policy, you have to prove that you’re unable to do a certain number of everyday activities on your insurers’ checklist.

These ADL policies are often sold to those in risky occupations. And frankly, they’re not up to scratch. To make a successful claim is extremely difficult as there are so many conditions – so why pay for a policy you’re never likely to use?

Public awareness of ADL is rising – one anti-ADL Twitter account, for example, has now garnered almost 14,000 followers. This is the protection industry’s big chance to prove it can provide a great product.

Get better protected

So what other types of income protection policies are there? ‘Own occupation cover’ pays out if you’re unable to do your own job and is the highest quality product. Next best is a policy that pays out if you’re unable to do a ‘suited’ job, while ‘any occupation cover’ pays out if you’re unable to take any type of work at all.

The ever-shrinking government safety-net will probably make more people consider taking out income protection, as state benefits are becoming restricted or withdrawn altogether. And yet, I’m often asked why more people don’t buy income protection.

One of the answers is that they don’t trust the whole protection insurance industry in the wake of the PPI mis-selling scandal. Selling impractical ADL policies is giving income protection a bad name when, for most people, it should be amongst the most vital types of insurance they have.

We’re investigating income protection, good and bad, right now. Have you taken out an income protection policy? If you haven’t, what is it that’s putting you off?

Comments
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William says:
9 May 2012

Back in 2009 I looked into getting this, when my then employer started making redundancies. But knowing my luck, I just assumed they’d find a way to not pay out. The stress of knowing but waiting even caused me to have a nervous breakdown/panic attacks. And as it turns out I was made redundant in 2010 (which sparked the breakdown off again) during the 3rd wave of redundancies ( after each wave they’d say we have no plans to make any more, but we all knew they would). Since then I’ve been unemployed 19 months now, and have not had a penny in benefits from the government as in the 25 years I was paying tax I didn’t blow it all and therefore am deemed not to qualify for it. Moral seems to be spend all the money you have as soon as you get it then the government will happily throw more your way 🙁

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Martyn Saville says:
13 May 2012

Hi William. Thanks for your comments – I’ve been there too in a previous job, with one round of redundancies following another. The effect that this has on the workforce can be highly debilitating and often leads people to look for a new job elsewhere (jumping before they’re pushed).

The problem is that it’s very difficult to insure against redundancy, particularly in the current economic climate where losing your job is a very real possibility for many people. If you’re aware of a risk to your job, insurers (understandably) won’t usually insure you. Similarly, if you fear for your job, the last thing you may want to do is pay money to an insurer: for many people, the best thing to do would be to self-insure, paying down debt and building up an emergency fund. But with stagnant wages, rising prices and soaring fuel bills, that’s easier said than done. There’s clearly a challenge there for the insurance industry to come up with an affordable solution, but I fear it won’t.

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William says:
13 May 2012

Very true, thats why I’m glad I didn’t go for Income protection. I never have trusted insurance companies. Even though I’m out of work, I’m luckier than alot with jobs. Only debt I have is a £10k offset mortgage. (I have on mobile phone, flat screen TV, designer clothes etc.) And I think I’m actually better off now that 19 months ago as I’ve had no health problems which blighted the last 18 months of work. The only down side being it does give me alot of free time to contribute to alot of which conversions 🙂

A comment I’ve made on alot of posts is also relevant here. Most companies operating in the UK are only after making money for the directors and in this case selling insurance is just their means to an end.

I sometimes wish inerest rates would rocket so my emergency fund would stop tumbling at the rate it is. But I realise thats just being selfish.

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Chris Hargreaves says:
10 May 2012

Big thank you to Which for highlighting these useless income protection policies. As the person behind the Angry Policyholder and scotprovsaysno campaign trying to have these policies either banned or for insurers to offer ‘own occupation’ to all policyholders I am very grateful for this article. As a consumer you buy a product with the faith that it will do what its supposed to do. If you buy an income protection policy the clue is in the name that in the event you cannot work due to ill health this product will provide you with a tax free sum normally up to 75% of your income prior to your claim.

Assisted daily living (ADL) definitions are an unfair way of assessing somebody’s ability to work. I was in hospital for 3 months in 3 hospitals where I had to deal with the stress of being incorrectly diagnosed with two serious medical conditions, picking up an infection and also getting a large PE due to being bedbound for so long. I was in a critical state and the only people who disagreed was my insurer who said if I could hold a pen this policy would not pay out. I don’t know what job I was supposed to do whilst in hospital and the fact I was readmitted within 24hrs of of my final discharge shows I had serious problems.

What I am so angry about is that I had to fight for 2.5 years to win my claim and when I started my Twitter and Facebook campaign was devistated to find out that experts knew all about these policies and how they were not worth the paper they are written on. This has been a talking point for over 6 years yet the industry failed to act and the reason could be that they make in excess of £150 million pounds a year in premiums with the full knowledge they will hardly ever have to payout. The industry claims that they have no choice but to offer these useless policies as it gives choice and value to manual workers but this argument falls down when you find out friendly insurers offer ‘own occupations’ to all their policyholders at competitive prices and have the best payout percentages compared with the industry average. In their own words they don’t want to aurgue over if you can climb stairs or hold a pen, if you can’t work they want to pay out who are also their owners/members.

All I can hope for is that my case and determination to stop another person or family going through this works but even though my campaign has helped make this one of the hottest topics within the insurance industry people a sad recent case highlighted a dying man who needed round the clock care was also refused a payout on one of these policies. How ill do you have to be? I just wish and hope that Which? can finally get this story into the broadcast media and finally tell the public how these policies leave policyholders in desperate circumstances because these policies are worthless. I am exchausted and having to go back into hospital and Monday so will have to stop campaigning for a while. Fingers crossed.

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Martyn Saville says:
13 May 2012

Hi Chris. Thanks for taking the time to describe your experiences with ADL policies – this is exactly why I think they’re unsuitable for the vast majority of people. Being able to dress yourself and read 18-point print in no way mean you’re fit to go out and do a 40-hour week in a job. And with unemployment creeping up, jobs are ever harder to find, even if you’re well enough to get through the application and interview process. If you’re accepted for an IP policy, that should mean it pays out if you’re unable to do your own job – policies based on your ability to do daily tasks don’t come close to offering adequate cover in my view.

All the very best in the coming week from the Which? Money team – hope it all goes well in hospital.

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iProtect says:
14 May 2012

I am speaking as an on-line supplier of short-term Income Protection Insurance, so obviously I have an undeniable vested interest, however it is STILL a tragedy that the PPI miss-selling scandal has frightened people away from buying anything associated with the words ‘protection insurance’. There are more households than ever struggling with a combination of successive sub-inflation wage rises and high inflation, resulting in far less opportunity to save.

Self insurance is certainly the answer for those who can afford to maintain a ‘rainy day fund’ – the equivalent to 6 to 12 months take home pay should be seen as a minimum. Millions can’t save anything like this. They have nothing to fall back on risking chronic debt, the spiral of pay-day loans or similar. For the price of a weekly packet of cigarettes we issue policies that have paid out thousands to people who would have otherwise been in deep trouble financially during this recession. Short-term Income Protection, also called Lifestyle Protection, has a valuable part to play for those who are in work but potentially living on a financial knife edge because they have nothing left to pay the bills after a month or two with no wages coming in.

You are right, Income Protection is probably an insurance we all should have. Unfortunately there is a huge gap in terms of public knowledge about the type of products available. Furthermore, the insurance industry has done itself no favours by allowing loan payment protection to be high jacked by commission hungry “trust brands”; these have destroyed public confidence in buying what should otherwise be the must-have product during uncertain economic times.

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Rosie says:
15 May 2012

As I’ve mentioned on another post, I’m a highly qualified “insurance professional” with many years’ experience in the financial services sector.
I have to say, though, that even I now don’t buy certain products because I no longer trust insurance companies’ senior executives and marketing teams. Technical product knowledge rarely exists in companies these days and it’s all about attracting customers, maximising profit and avoiding paying out on claims.
I recently thought I might have to claim on a critical illness policy I’ve had for about 20 years and I was more worried that I might have to fight to get my claim accepted (and take real care in how I voiced the details of my illness over the phone, and wrote the claim form!) than I was about the serious illness I might have had. This is definitely NOT how it should be and if I have these concerns, then should we be surprised that people who are outside the insurance industry decide not to buy these products that most people should be buying?
I’d ideally chose to self insure (with one pot of money to cover any unforeseen event) but, having saved substantial amounts in different ways to boost my meagre pension funds, but then finding I’ve had to use every penny of that to cover normal living costs after several redundancies in my career (and no eligibility for benefits due to my partner working, though I was the major earner), is it any surprise that people don’t bother saving either?
The financial services industry needs cleaning up and turning back into a true profession if it’s to survive marketing personal (as opposed to commercial) products.

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