There are many reasons why people do the jobs they do. Doing something they enjoy and are good at, helping others and having a purpose in life are all very valid reasons for working. However, for most people, the main reason for working is to earn money to live on and build a future that will make them happy.
Not only do they need money for essentials like food, clothing and a roof over their heads, they need money to put away for retirement. They want to be able to buy gifts for partners, children or grandchildren; take their loved ones out for a meal to show how much they are appreciated and maybe see a bit of the world.
That’s all great when they are fit and well enough to earn the money to make it happen. But if they develop an illness or have an accident which means they can’t work, even if it’s just in the short-term, the financial implications of that will impact their lifestyle.
Advisers can’t prevent their clients from being too ill or injured to work at some point in their lives. But they can help to cushion their clients from this potential blow by recommending an income protection plan. These policies are designed to replace a client’s income by paying a percentage of their usual earnings if they become too ill or injured to work.
Protecting a client’s income is important because without an income, it becomes difficult for many to continue with other aspects of their financial plans, such as investing to grow their wealth or saving for retirement. This can, in turn, affect their longer-term plans. However, the cost of an income protection policy must fall within a client’s budget and choosing the length of deferred period is one way of making sure the product is affordable.
A deferred period is the time that a client who makes a claim will need to be off work before they receive an income from their plan. Income protection policies that pay out sooner will be more expensive, as the shorter the client’s chosen waiting period, the higher the premiums. So advisers will want to balance the cost with the right deferred period for their client’s personal circumstances.
Advisers who are looking at deferred periods when selecting the most appropriate cover for their clients will also want to familiarise themselves with providers’ treatment of linked claims. This is where insurers do not apply the deferred period if a client has made a claim, returns to work and then becomes unable to work again due to the same condition or a different one that was caused by the original illness or injury.
Look at any income protection provider’s breakdown of the reasons for claims and you will find the same conditions cropping up: musculoskeletal conditions which affect the joints, bones and muscles; mental health conditions; cancer and heart attack. While some people recover completely, others may find their condition recurs or leads to different health problems.
For example, a quick scan of the NHS website shows that more years are lived with musculoskeletal disability than any other long-term condition, so for some people the problem will never go away. It is also associated with conditions such as depression, which can also result in people having to take more time off work.
Without the waiver of deferred period for linked claims, people who return to work after a claim then suffer from the same health problems or related ones would potentially face a ‘double whammy’ of having to wait again for their income protection policy to pay out. That is the last thing they need, having got their lives back to normal only to find that their health takes a backward step.
Fortunately, all income protection providers do offer a linked claim benefit where the deferred period is waived if returners to work are unable to work again due to the same illness or a connected condition. However, there are variations between providers in terms of when a health problem needs to return for it to be defined as a linked claim, as our table shows.
Most propositions – 14 out of 23 – will offer a linked claim benefit if the original condition or one that is caused by it occurs within six months of the client returning to work after their original claim. The remaining nine propositions will waive the deferred period for a longer period – if the problems occur within 12 months of returning to work. These offerings are from five providers – Aviva, Cirencester Friendly, Legal & General, Royal London and Zurich
However, if a client suffers with the same health problem or a related one after the respective six month and 12-month period, they will need to wait for their chosen deferred period to end before they will receive a payout from their policy.
The linked claims feature offers a huge benefit to clients and additional reassurance that their income is more easily protected at a difficult and worrying time. It’s a feature advisers should ensure forms part of their client conversations.