Income protection plans are correctly thought of as providing a client with a replacement for their income if the become ill or injured and unable to work. In such a scenario an income protection plan can provide valuable financial support to clients in order to ensure that they are able to continue to pay their bills and essential expenditure. In recent times however, many plans have added features which provide a lump sum payment to clients when exceptional events happen that might mean immediate access to cash is required. Trauma benefit is one such feature and in this article we look at which insurers offer this.
Trauma benefit is a relatively new feature for income protection that provides the client with a lump sum in addition to their normal income protection benefit, if they suffer from one of six conditions if deemed permanent and irreversible.
- Loss of hand or foot
- Loss of Speech
- Paralysis of limbs
- Loss of independence
The lump sum provided is designed to help provide the finance that may be required to help the client adapt to the significant impact these conditions will have on their life. This could be to fund private treatment or rehabilitation, make environmental changes to their homes or any other needs that arise.
Currently AIG, Aviva (not included on Living Costs) and Zurich (Select only) all offer this benefit. Whilst their definitions and the severity of the condition differ across each insurer, all cover all six conditions within their trauma benefit.
Where a client meets the criteria set out in one of the six condition definitions, each insurer will pay six times the monthly benefit as a lump sum immediately and will commence payment of the normal income protection benefit once the deferred period as elapsed.
Where a client has a particularly high benefit amount each insurer will limit the amount they will pay in total as shown below:
As such those with a monthly benefit of £6,666.67 per month and above are likely to receive more from AIG and Zurich, however with the average income protection benefit being under £20,000 per annum this is unlikely to make a difference to the majority of clients.
Outside of specific trauma benefits offer by these three insurers there are a number of other insurers that offer allowances for similar (and in some cases quite different) conditions.
Cirencester Friendly offer severe injury cover as an additional option within their My Earnings Protected product. If selected the client will be required to pay an additional premium and if the client suffers from one of eight injuries that have been caused by physical trauma or injury, Cirencester Friendly will start paying benefits immediately until the deferred period elapses and the main benefit starts. The eight injuries covered are:
- Brain Injury
- Amputation/loss of limb
- Loss of sight
- Deep lacerations
- Fractured bones (ex fingers, toes, nose, stress/hairline and pathological fractures)
- Burns/Scalds (ex first degree burns)
Royal London also provide a feature where if the client suffers from one of six serious illness they will commence payment of benefits (after the deferred period elapses) if they are unable to work in their own occupation in ANY capacity. This is likely to make it easier to start claiming on the income protection plan as the client is not required to be unable to complete the material and substantial duties of their own occupation and instead unable to complete any duty. The conditions this applies to are:
- Complete dependency
- Organic brain disease
Lastly Vitality provide a Permanent Disability increase feature within their Comprehensive income protection plans. This pays an additional 10% on top of the standard benefit if the client is diagnoses with a condition that leaves them unable to complete at least three Activities of Daily Living on a permanent basis. The additional 10% increase plus the normal benefit must not be above the maximum benefit level of £200,000.
Undoubtedly the main priority for an income protection plan is that it provides an income when a client is unable to work due to injury or illness. If the injury or illness leads to permanent disablement due to one of the six conditions listed by AIG, Aviva and Zurich then a lump sum could help provide the client with valuable financial resource to help them adapt.