If there is one thing you can be sure about, it is that you cannot be sure what your clients’ circumstances will be in the future. In terms of protecting your clients income, regular changes to earned income and expenditure can mean that an income protection plan put in place a year or two ago may be insufficient basedon the clients’ current situation. This re-inforces the need for advisers to regularly review a clients’ protection needs, however in what scenarios can an income protection benefit be increased without the need for underwriting? In this article we look at what guaranteed insurability options are offered on income protection plans.

Guaranteed Insurability Options (GIOs) enable clients to increase the level of cover under a policy without further underwriting as long as a certain life event has happened. Although all insurers provide GIOs as standard on their contracts, looking at the detail of such options identifies significant variations in the scope and number of features.

There are various different life events for which insurers offer GIOs on income protection policies. The table below highlights the GIOs offered and which insurers offer each one;

Marriage / Civil Partnership
Birth of a child / Legal adoption
Divorce or dissolution of civil partnership
New Mortgage or Mortgage increase
Increase in rent or move to new rental accomodation
Increase in earnings
Separation
AEGON
Y
Y
Y
Y
N
Y
N
AIG
Y
Y
N
Y
N
Y
N
Aviva
Y
Y
Y
Y
Y
Y
Y
Aviva Living Costs
N
N
N
Y
Y
N
N
British Friendly Protect
Y
Y
N
Y
N
N
N
British Friendly Breathing Space
N
N
N
N
N
N
N
Cirencester Friendly All plans
Y
Y
N
Y
N
Y
N
Holloway Friendly Classic Plus
N
N
N
N
N
N
N

Holloway Friendly

All other plans

Y
Y
N
Y
N
Y
N
Legal & General
N
N
N
Y
N
Y
N
Legal & General Rental
N
N
N
Y
Y
Y
N
LV=
Y
Y
N
Y
Y
Y
N
LV= Personal Sick Pay
N
N
N
N
N
N
N
Royal London
Y
Y
Y
Y
N
Y

The Exeter

All plans

Y
Y
N
Y
N
N
N
Vitality Short Term or Primary Cover
N
N
N
Y
N
Y
N
Vitality Comprehensive
Y
Y
N
Y
N
Y
N
Vitality Essentials
N
N
N
N
N
N
N
Zurich
Y
Y
Y
Y
N
Y
Y

In addition to this a number of insurers will allow clients to increase their cover on certain policy anniversaries. Currently British Friendly, Cirencester Friendly, Legal & General, The Exeter and Vitality (Comprehensive cover only) all offer this. The below highlights on what policy anniversary this can be excercised.  

All insurers that offer GIOs enable clients to increase the sum assured on multiple occasions, however limits do apply to how much it can be increased by. These limits are based on the lesser of a fixed monetary amount and a percentage of the original sum assured when the policy was first taken out. In terms of the maximum monetary amount that the sum assured can be increased by there seems a wide variance across insurers.

*Both British Friendly and Cirencester Friendly do not apply a maximum monetary increase limit. 

**Both LV= and Zurich will allow an increase of 50% of the benefit amount up to £20,000 for a significant increase in salary

Unfortunately, guaranteed insurability options will not be offered to all clients taking out protection. Most insurers do not offer them to lives where a rating has been applied and whilst other insurers do the more severely rated cases are often excluded. Of all the insurers it is only AIG, Cirencester Friendly, LV=, The Exeter and Zurich that allow such increases to rated cases.

The types of events that are required before a Guaranteed Insurability Option can be exercised are clearly significant. As such many consumers may not have the time or ability to inform their insurer straight away let alone pull together the necessary documentation an insurer may require. It is therefore beneficial for the insurer allowing a longer timeframe between the life event happening and the guaranteed insurability option being used.

The reliance on a specific life event happening means that GIOs are not always going to be an option when looking to increase a client’s cover. Where a life event has happened however, the ability to increase the sum assured without any further underwriting should be appealing, especially if the client’s health has deteriorated since the inception of the policy.

Ongoing servicing of clients is important, more so now as the regulator starts to look upon the protection market and advice services more thoroughly. Ensuring that your clients protection provisions remain suitable should be a key part of this. Whilst GIOs may not always provide the right answer for the client in many events it can save the client time, effort and stress when increasing cover.

Overall AEGON, Legal & General, LV=, Royal London and Zurich are particularly strong when it comes to the amount that cover can be increased by. British Friendly, Legal & General, The Exeter and Vitality (Comprehensive) all offer the client the ability to increase benefits on every third policy anniversary, whilst AEGON, Legal & General and Royal London all allow the client the longest time from the event happening to excercise the option.

1 Comment

  1. Lee Martin

    Excellent article yet again

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *