It is fair to say that COVID-19 decimated the short deferred period market, with all but one insurer pulling their one day and one week options in pretty quick order. Given the landscape it was quite understandable, however it left a massive gap for those that may have immediate income needs in the event of illness or injury. Today, however marks a positive step forward for such clients as LV= have reintroduced both 1 day and 1 week waiting periods to their Personal Sick Pay plan. In this article we delve into the detail.
The reintroduction of 1 day and 1 week deferred periods within the Personal Sick Pay plan (PSP) is extremely welcome, however given that we are by no means out of the woods with regard to COVID, there are understandable restrictions.
Employed clients first
The first restriction is that these deferred periods will only be offered to employed clients and not those that are self-employed. Part of this decision is undoubtedly based on the self-employed posing a higher risk, however LV=’s pre-COVID-19 experience is that circa 80% of people that took out Personal Sick Pay were actually employed. As such LV= will still be able to offer shorter deferred periods to a significant proportion of clients and can monitor their experience and hopefully reintroduce these to the self-employed in the near future.
Changes to underwriting questions
When assessing a clients’ application and whether they can offer a day 1 or week 1 deferred period, LV= will now be considering two factors. Along with their personal circumstances, these are whether their job or earnings have been affected by COVID and the industry they work in. Reassuringly LV= are not applying a blanket restriction on any industry however if a client has been furloughed, made redundant, claimed on COVID-19 related government income support or put their business on hold due to the pandemic and works in one of the following industries, it is unlikely that a deferred period of 1 day or 1 week will be offered:
- Leisure and retail
- Events and hospitality
- Restaurant or bar trade
- Travel or tourism
- Hairdressing or beauty
Where LV= are unable to offer a shorter deferred period they will look to offer a 4 week waiting period instead.
Temporary COVID respiratory exclusion
Given the current spike in hospital admissions we are seeing due to the second wave, it is perhaps unsurprising that LV= have added a COVID respiratory exclusion. The Exeter, who are the only other insurer that currently offer 1 day and 1 week deferred periods also apply a similar exclusion. LV=’s specific exclusion reads:
“We will not pay a claim due to symptoms or complications of COVID-19 or other coronaviruses, respiratory tract infection, cold or flu if your client is unable to work for less than 4 weeks. Every year we will review whether this exclusion is still necessary and if we can improve or remove this exclusion from your policy we will let you know.”
Due to the way this is worded this will not apply to clients with deferred periods of 4 weeks or more. We would however encourage LV= to review this more frequently than on an annual basis.
Changes to career break option
Whilst the re-introduction of short deferred periods are great news for advisers, LV= have also applied more stringent restrictions to their career break option. Up until now they offered the career break within PSP for up to 12 months on an own occupation basis and benefits based on earnings in the 12 months before taking the break.
Under the new terms, clients that that take a career break or become unemployed during the plan will be switched to LV= homemaker incapacity definition after 30 days of stopping work and the maximum benefit will be limited to the lesser of the monthly benefit or £1,500 p.m. If the client is incapacitated within the first 30 days of stopping work LV= will apply an own occupation definition and benefits will be based on earnings in the 12 months before taking the break.
This clearly reduces cover for those that are not in work for longer than 30 days, however LV= will allow clients to reduce their benefit/premiums and re-increase this to previous levels without further underwriting for up to 24 months.
LV= have been one of the leading lights in their approach throughout the COVID-19 pandemic. They were one of the first insurers to introduce virtual medical screenings, provided a premium break option for vulnerable clients where cover remained in force and offered a benefit reduction option in advance of the regulator advocating insurers take this approach. This reintroduction is another example of LV=’s desire to provide the best possible cover during a difficult time.
Yes there are restrictions that mean that many that need a shorter deferred period may not be able to obtain it. There will however, be a large number of clients that will be offered such terms (LV= estimate 75% of their typical day 1/week 1 applicants will be accepted) and given that we are still in unchartered territory, we can understand the rationale. LV=’s experience is good and these restriction can be removed soon. No doubt other insurers will be watching closely and we expect that it will not be long before others follow.