Which insurers help clients keep protection plans in force when they are unable to work?
The financial impact of becoming ill or injured and unable to work can result in clients cutting down on their outgoing expenses. It is clear that for many their TV subscriptions, mobile phone contract etc. are often valued more highly than their insurance but cancelling a life or critical illness policy to save the premiums could leave the client at significant financial risk. In this insight, we look at how providers support clients with life and/or critical illness plans in the event that they are unable to work due to injury or illness and contrast the differences in each approach.
Waiver of premium is a feature of protection plans that can help clients keep their cover in place if they are unable to work through injury or illness. In many ways it works as a mini income protection plan that covers the cost of the premiums so that the consumer does not have to bear the expense if they are unable to work but not ill enough to claim on the main policy.
Until very recently, waiver of premium was always a benefit that had to be bought at additional cost. However, providers such as Guardian have taken the decision to include this benefit automatically for all policies.
As well as automatically including waiver, Guardian have extended the circumstances in which they will pay waiver. Traditionally it is paid when a client becomes ill or injured and unable to work, however Guardian will also pay waiver for up to 6 months if a client:
- Involuntarily losses their job
- Is made redundant
- Is on maternity or paternity leave
For a claim to be successfully made on any of these the plan must have been in force for at least 12 months.
A key factor when selecting waiver is the deferred period which determines when the benefit can begin. Considering how much savings the client has and their employer’s sick pay policy will help inform how long this needs to be. While a shorter deferred period enables clients to claim more quickly, this will make it more expensive. Below we highlight what deferred periods are offered by the different insurers on their waiver of premium.
Understanding the terms and definitions that have to be met for the waiver of premium benefit to take effect is important. All providers offer to cover the client for ‘Own Occupation’ terms but most will not accept all occupations. Guardian once again go one step further by providing “own occupation” waiver for all occupations.
It is widely recognised that retirement ages are increasing and will continue to do so with many consumers now gradually reducing the hours they work over time rather than just fully retire. Most insurers will state that waiver of premium will only be offered to a certain age, which could cause problems if the client continues working past this.
The table below compares the maximum age to which waiver is offered by each insurer and the maximum age of expiry of the plan for both life protection and critical illness:
*Guardian, Legal & General and LV= will offer waiver of premium for both Life and Critical Illness until the expiry of the policy.
Not enforcing a maximum age for waiver, means clients are covered until they actually retire (and as such are unable to claim as an own occupation definitions will generally be used) or the end of the plan. This can provide clients with the reassurance that their protection will remain in place for the term decided on, even if they are unable to pay premiums themselves due to injury or illness.
If a client retires during the plan, the adviser should ensure that waiver is removed, and premiums are reduced accordingly. Not doing so will mean a client is paying for a benefit they cannot claim on. As the waiver is automatically included within the Guardian plan, clients will not be able to remove this and reduce the premium.
Not all providers will offer the benefit on cases where the client has been given a rating. Whilst some insurers do offer waiver for rated cases this will often depend on the size of the rating and may include exclusions:
Like many protection features, it is important that advisers keep in regular contact with clients to ensure that they are aware of what it does and when it can be used and whether waiver of premium remains suitable based on their current circumstances. Waiver of premium can be a powerful feature to help keep the client financially resilient at a time when purse strings may be tight, and they may be cutting back on their spending.
Overall, Guardian look to have the strongest proposition, as waiver is offered automatically on a one-month deferred basis with rated cases not excluded. Royal London and Aviva are also worth highlighting as they offer a high maximum age, can still offer terms on rated cases whilst also offering deferred periods of 1, 3 and 6 months for Aviva and 1, 3, 6 and 12 months for Royal London.