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How income protection providers help with a hospital stay

How income protection providers help with a hospital stay

In reading this article you will understand

  • What hospitalisation benefit is and how it helps income protection clients
  • Which providers offer hospitalisation and on which income protection products
  • How insurers differ in their approach

With human nature being what it is, we tend to think we will not be among those who are admitted to hospital due to an accident or illness each year. Advisers selling protection will come across many clients who think they are invincible. However, there will be some people who start the day at home as normal but will finish it in a hospital bed, through sudden illness or accident.  Whilst Income Protection plans are designed to subsidise a loss of income due to illness or injury, the deferred period often means that the immediate costs of hospitalisation for the family have to be borne before any payment is received.

If insurers can step in and provide financial help while a client is in hospital, on top of the usual income protection benefit, this can make things a little easier for them and their families. In this insight we look at what financial help insurers can provide if a client is admitted to hospital.

People are spending less time in hospital than they would have done in the past due to advances in medical care. In the last few years, the NHS has also made a concerted effort to reduce the length of hospital stays in excess of 21 days. Occupying a hospital bed for that long is seen to be bad for the patient in all sorts of ways – increasing the risk of elderly patients catching an infection, for example – and an indication of  hospital inefficiencies. After all, if there are large numbers of patients occupying beds for long periods, this reduces a hospital’s ability to treat more patients.

For most people a hospital stay will be short – no more than a day or two – but sometimes they will be longer than anticipated, especially if clients have multiple health conditions that can cause complications or have major operations. The NHS website says having a coronary artery bypass graft, for example, will require a week or so in hospital. Immediately after heart surgery, patients may be moved to intensive care for a day or so, and then onto a regular ward before they are finally allowed to go home.

Covid-19 has also been a contributory factor in some people requiring a hospital bed for longer than a day or two. Although most people who test positive will have mild to moderate symptoms that can be managed at home, some people will require hospitalisation, particularly if they have other health conditions.

* Not on Living Costs Protection   ** Not on Low Start plan   *** Only on Income Protection Cover Plus   **** Not on Core plan

Our table shows that hospitalisation benefit is provided by seven out of the eleven income protection providers that have supplied data. These insurers are AIG, Aviva, Cirencester Friendly, Legal & General, Royal London, Vitality and Zurich.

In most cases, the hospitalisation benefit is a contractual benefit. This means it is part of the terms and conditions of the contract, so the insurer is legally obliged to continue providing it for the duration of the contract. Only Cirencester Friendly and Zurich, do not offer hospitalisation benefit on this basis. This means the benefit is provided at the insurer’s discretion, so they can remove it at any time.

In Cirencester Friendly’s case, hospitalisation benefit is a chargeable extra where the premium increases if selected. It is the only insurer in our table that structures the benefit this way. However, the flip side of charging extra for this benefit is that Cirencester Friendly can pay hospitalisation benefit sooner than the other providers.

The way hospitalisation benefit works is that clients will need to spend a certain number of consecutive nights in hospital before they will receive benefit for each additional night. As our chart shows, most insurers require clients to spend seven consecutive nights in hospital before they qualify for hospitalisation benefit. There are two exceptions – Aviva and Cirencester Friendly, which requires six consecutive nights and three consecutive nights in hospital respectively for hospitalisation benefit to then be paid.

Insurers tend to adopt one of two different approaches to hospitalisation benefit where clients meet the qualifying criteria. Some insurers pay a set monetary amount per night, while others pay a percentage of the plan’s monthly benefit.

Insurer
Basis of payment
Amount paid per night
AIG
Monetary amount
£100
Aviva
Monetary amount
£100
Cirencester Friendly
Monetary amount
£50
Legal & General
Fraction of monthly benefit
1/30 (max £150)
Royal London
Monetary amount
£100
VitalityLife
Monetary amouunt
£100
Zurich
Monetary amount
£100

As our table shows, most income protection providers will pay a set monetary amount per night. Only Legal & General take a different approach, paying out a fraction of the monthly benefit instead. Looking at how much insurers pay for each night spent in hospital, it is clear to see that £100 is the broad consensus figure. Only Cirencester Friendly opts for a different amount on both its plans, which is half that of the other insurers. Legal & General, on the other hand, will pay 1/30th of the monthly benefit clients receive from their income protection plans, including its Rental product, up to a ceiling of £150 per night.

As with other aspects of income protection plans, there are maximum limits for the number of consecutive nights in hospital for which insurers will pay a benefit. Legal & General has the highest limit at 91 consecutive days, but the vast majority of insurers are close behind at 90 consecutive nights. Once again Cirencester Friendly’s approach is markedly different to its peers – it will pay hospitalisation benefit for a maximum of 21 nights.

Sometimes insurers will apply exclusions to benefit payments if where the risk of certain conditions or incidents is regarded as too high. However, there are very few exclusions applied by insurers to their hospitalisation benefits on income protection plans.

No insurer excludes hazardous pursuits, alcohol abuse, drug abuse, war/civil commotion or flying other than as a passenger in a commercially licensed aircraft. Self-inflicted injury is something that Royal London excludes, but it is the only insurer to do so.

Overall, AIG, Aviva, Royal London and Vitality deserve a mention for ticking most of the right boxes. They all provide hospitalisation benefit as a contractual benefit and pay £100 a night up to a maximum of 90 nights. However, Aviva is particularly strong as it requires clients to spend one night less in hospital than the others to qualify and it has no exclusions, unlike Royal London.

Cirencester Friendly requires clients to be in hospital for only three nights before they qualify for hospitalisation benefit which looks great. However, the downsides are that the benefit will only be paid for a maximum of 21 days at only £50 per night and clients pay extra for it.

Things to reflect on for CPD:

  • Which provider’s hospitalisation benefit is the best fit for your client demographic and why?
  • What client circumstances would influence your recommendation of the best plan?
  • If you wrote this article for your client bank what conclusions would you draw?

About The Author

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As well as writing for Protection Guru, Amanda Newman Smith is the feature writer at adviser trade publication Money Marketing. She started her career at a local newspaper in London and has been writing about protection products since 2000. In her previous role at Money Marketing she specialised in analysis of new financial products, including those in the protection market. Having recently become interested in antiques, Amanda spends her free time with her husband and their three children, hunting for unloved pieces to restore to their former glory.

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