Hear from the expert - Income Protection

By - Mark
05.08.21 09:26 AM

Income Protection Propositions Manager, Julie Higman, gives us an insight into what the last 18 months has meant for income protection

Furlough and Income Protection (IP) – the similarities

Just as Covid-19 has given us a world full of face masks, hand sanitiser and ‘super spreaders’, it’s also given people the chance to think about their personal finances. At the peak the pandemic, furlough was a reality that hit over a quarter of the UK’s workforce *. This word ‘furlough’ that originated from 17th century German and was used to describe paid leave granted to soldiers, was suddenly thrust into the mainstream, talked about in the news, amongst friends, and became part of everyday conversation.


If you think about it though, furlough isn’t that different to income protection.


If your client earns £30,000 per year and was put on furlough at 80%, their monthly earnings would be £2,000 before tax. With income protection, they could be covered for 65% of their earnings, £1,625 per month - but this would be tax free.


Pitching income protection to clients can be difficult, with only 20% of people having a good understanding of what IP actually is **. This is where you can potentially use the popularity of the word ‘furlough’ to your advantage. Simply put - IP is like a “personal furlough scheme that you set up for yourself in case you’re unable to work due to illness or injury”. This simple sentence is perhaps the best way to grab clients attention and make the concept of IP much easier to understand before talking in detail about percentages, calculations, and the benefits of a guaranteed income.


Benefit Guarantee


If life has taught us one thing over the last 12-18 months, it’s that the unexpected can happen and does.  The workplace has changed for so many people, grappling with the challenges of working from home, pets walking over keyboards and home schooling. Even for those lucky enough to still be working, their income may have reduced. It’s an uncertain future for many in their working lives. This is where benefit guarantees on IP can help.


Benefit guarantee is there to help make sure that if client’s income reduces, their monthly IP benefit doesn’t necessarily need to, so they can continue with the lifestyle they’re accustomed to without necessarily making cutbacks.


At Aviva, our Income Protection+ has a £1,500 per month benefit guarantee. This means that, providing your client is working for at least 16 hours a week before they are incapacitated, if they have a monthly IP benefit of £1,500 or less - even if their wages or hours go down - their IP benefit will remain the same.


For those clients with a monthly benefit of over £1,500, we do things a little bit differently to most other insurers and offer an enhanced benefit guarantee. We will pay the full monthly benefit amount if their maximum benefit amount on their reduced earnings (65% of the first £60,000 of your gross earnings plus 45% of anything above £60,000) is equal or more than 90% of their benefit amount.


If their maximum benefit amount on their reduced earnings is less than 90% of their benefit amount, we would pay the higher of £1,500 per month or their benefit amount.


For example:

  1. A customer earning £70,000 pa has benefit of £3,625 per month on their IP+ policy. 
  2. When they need to make a claim, their earnings had reduced to £56,000 per year. Maximum benefit on these earnings gives monthly benefit of £3,033 pm which is less than 90% of their benefit amount.
  3. Therefore, our benefit guarantee will pay them benefit of £3,033 pm.


We want to be fair to all our customers, so we’ve not singled out any specific occupations for our enhanced benefit guarantee.


Hospital Benefit


We are all acutely aware of the amazing job everyone in the NHS has done over the last 12-18 months, but what many of us may have feared from the pandemic is being so ill that we need to be admitted to hospital. As of April 4th, 458,863 patients had been admitted to hospital due to Covid-19 ***.


The hospital benefit that we offer as standard on our Income Protection+ product pays out £100 per night if your client is hospitalised for at least 6 consecutive nights. We know however that clients may still incur or have a loss of income whilst in hospital which is why we backdate the payments to day 1 and will continue to pay the benefit for up to 90 days. Whilst we can’t remove any fears around ending up in hospital, we can help by offering a financial buffer.


Read our Income Protection+ policy conditions to discover how our product has been designed to protect against the unexpected and discover the Aviva difference.

Julie Higman, Income Protection Propositions Manager at Aviva

By Julie Higman, Income Protection Propositions Manager at Aviva

Sources

https://www.ons.gov.uk
** The Association of Mortgage Intermediaries, The new protection challenge (November 2020)
*** https://coronavirus.data.gov.uk/details/healthcare

Mark