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Which income protection providers offer the best minimum benefit guarantee?

Which income protection providers offer the best minimum benefit guarantee?

It’s fair to say that everyone expects their earnings to rise over time, not fall. As people progress through their careers, gaining more knowledge and experience – perhaps even professional qualifications – their value increases and they tend to earn more accordingly.

However, life doesn’t always follow the perfect template. There are times when a client’s earnings can dip – sometimes through choice, sometimes because they have no alternative. In this situation, a minimum benefit guarantee is useful feature to have on a client’s income protection plan. It cushions them from the impact that lower earnings could have on their income protection benefits. In this insight we look at which insurers offer this and the differences between them.

If the client did experience a drop in earnings, for any number of reasons, if they became injured to too ill to work, a claim on their income protection policy may pay out a lower monthly benefit than when they took out the plan. This is because the benefit will be based on their earnings immediately before they become unable to work, not their previous higher earnings.

A policy which has a minimum benefit guarantee will provide a safety net for clients who are earning less than they used to, as their benefit will not drop below the amount of cover at the time of their claim or their insurer’s guaranteed monetary, whichever is lower.

With the exception of Cirencester Friendly, all providers include a minimum benefit guarantee. However, Holloway Friendly does so only on its One2Protect Income Protection plan and British Friendly only offers this on their Breathing Space product. For the purposes of this insight we will just focus on the financially assessed income protection products and exclude Aviva Living Costs, British Friendly Breathing Space and LV=’s new Mortgage and Rent Cover, which are unique in offering a benefit that is not linked in any way to the clients earnings. You can find out more about those here.

With the exception of The Exeter, all insurers include the guarantee as standard and the client doesn’t pay extra for it. The Exeter require the minimum benefit guarantee to be selected at the time of applying and charge extra for it. It is also worth noting that The Exeter only offers this on plans with a two-year claim period. Where The Exeter do fair well though is in offering upfront financial underwriting, which will cover towards the end of this insight.

To be eligible for the minimum benefit guarantee, where offered, clients may need to be working at least a certain number of hours a week at the time of the claim.

* Royal London do not have a minimum number of hours worked in order to qualify for the minimum benefit guarantee. If however, the client is working less than 16 hours their incapacity will be assessed based on their serious illness definitions as opposed to an own occupation definition.

Most insurers set the minimum working hours at 16 hours a week. The Exeter sets theirs at 30 hours for both employed and self-employed clients, as does Personal Sick Pay from LV=. Vitality has the same requirement for employed clients only. (Self-employed clients are subject to the lower requirement of at least 20 hours a week.) Only LV go higher that this, requiring a minimum of 32 hours on their Doctors and Surgeons cover. 

There is much less variation between insurers when it comes to the minimum monthly guaranteed amount, in monetary terms. Looking at our table, there are only two options for advisers here – £1,500 or £1,000, with the majority of insurers offering the former. Specialist policies for doctors and surgeons do however set the minimum benefit guarantee much higher, at £3,000.

One area that AIG, Aviva and The Exeter do well in is in allowing the guaranteed amounts to increase with inflation. The rest of the market do not offer this. All three insurers have chosen to the use the Retail Prices Index as a measure of inflation.

Fixed Benefit Option from The Exeter

The Exeter’s unique fixed benefit option allows applicants to lock-in at least 75% of the benefit amount they have requested, by providing financial evidence within 12 months of applying for cover. In the event of a claim The Exeter will only ask for financial evidence to assess eligibility for the remaining 25%. There is no additional charge to utilize this benefit and it is included as standard.

The table below outlines what financial evidence The Exeter require if clients wish to use the fixed benefit option, depending on their employment status:

Employment Status
Earnings Evidence Required
PAYE employee

Last month’s payslip

Last P60

Self-employed

Last 2 years’ self-assessment tax returns

Last 2 year’s certified accounts

Company director

Last 3 months’ payslips

Last 2 years’ P60

Last 2 years’s self-assessment tax returns

Last 2 years certified company accounts

There is no reason to not take advantage of the fixed benefit option, particularly given the lack of any automatic benefit guarantees on the plan. Clients are unlikely to be aware of this feature unless they chose to read the policy literature themselves, so it is something advisers will need to manage and make the client aware of.

Unlike the minimum benefit guarantee offered by other insurers, the fixed benefit option can potentially guarantee a much higher amount of cover. The maximum overall benefit The Exeter can provide is £10,000 a month, so in theory the highest benefit amount they could guarantee a client is £7,500 p/m.

Overall, AIGAvivaLegal & General and Zurich fair well as they only require the client to be working a minimum of 16 hours immediately before incapacity in order to qualify for the minimum benefit guarantee. In monetary terms all those providers pay a guaranteed minimum benefit of £1,500, which is the market norm and the highest amount available unless a client qualifies for enhanced terms under a doctors and surgeons plan.

Royal London has no minimum working hour requirement but clients need to meet its serious illness definition if working less than 16 hours.

Finally, The Exeter should be commended for being the only insurer on the market to offer up-front financial underwriting, guaranteeing 75% of the benefit. This is a seriously underrated feature that advisers should always look to take advantage of. 

About The Author

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Rob Harvey supports Protection Guru in it’s detailed research & benchmarking of protection products and features. He works alongside the team in helping drive product innovation and improvements with insurers and engages with adviser firms in ensuring they have the right tools & resources at their disposal to deliver the best protection advise. Prior to joining Protection Guru Rob spent 9 years at protection specialists Drewberry, where he worked as an adviser, learning & development manager and finally head of health & protection. In his spare time and when not out enjoying the pubs & bars of Brighton, Rob collects vintage clothing, is an historic motor racing enthusiast and avid country walker.

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