which insurers offer trauma benefit on income protection plans?
Income protection plans are correctly thought of as providing a client with a replacement for their income if they become ill or injured and unable to work. But clients may be unaware that there are situations where they could claim an extra on top of their usual income protection benefit if they accidents that leave them with disabilities that are permanent and irreversible. Trauma benefit, which does exactly that, is a relatively new feature on income protection plans that some insurers provide to add value to their plans. In this article we explore how insurers provide additional support for clients in such circumstances.
It may be unpleasant to think about, but people do have accidents which can leave them with disabilities that are permanent and irreversible. Car accidents are one example. Depending on the severity of the accident, they can cause paralysis, leave people deaf, blind or needing to have arms or legs amputated.
The impact such an accident has on the rest of a person’s life cannot be underestimated. All the usual things, such as going to work or the gym, meeting friends for a drink – even going to the cinema or planning the first dance if getting married – would need to be done differently, if possible to do at all. In this article we explore how insurers provide additional support for clients in such circumstances.
Trauma benefit cannot take away the physical and emotional pain that people may be suffering – or make all the practical difficulties that newly disabled people face go away. But it can make things easier financially if clients suffer from one of six conditions that are permanent and irreversible. These are:
- Loss of hand or foot
- Loss of Speech
- Paralysis of limbs
- Loss of independence
Income protection plans are intended to pay a percentage of clients’ income if they become too ill or injured to work. They are designed to give financial support to clients so that they can pay their bills and have money for essentials like food and heating.
However, the trend among insurers is to find different ways of helping clients beyond the main benefit so that plans increasingly offer more than basic expectations. This can help insurers and advisers ensure more people have the cover they need, as clients realise that the product does not ‘only’ provide what it is supposed to.
Trauma benefit is an example of insurers providing lump sum payments to clients in exceptional circumstances in which they need access to cash immediately. The lump sum payment is meant to help the client on the financial side while adapting to the massive changes that these conditions will bring to their lives. It can be used for anything, such as paying for private treatment or rehabilitation costs, or meeting the costs of making changes to their home – such as installing non-slip flooring in the bathroom or lowering kitchen worktops for wheelchair users.
There are three insurers that currently provide trauma benefit on their income protection policies – AIG, Aviva (not included on Living Costs) and Zurich (Select only). Although the criteria varies between insurers in terms of the definitions and the severity of the conditions that will trigger a payout, they all cover the six conditions mentioned previously within their trauma benefit.
Where a client meets the criteria laid out for one of the six condition definitions, each insurer will pay six times the monthly benefit as a lump sum straight away and will start paying the main income protection benefit after the deferred period.
Insurers will limit the total amount they will pay where clients have a particularly high benefit amount, as our chart shows:
Clients with monthly benefit of £6,666.67 a month and above are likely to receive more from AIG and Zurich. However, it is worth noting that the average income protection benefit is under £20,000 a year, so this will only be relevant to a minority of clients.
Other insurers, Cirencester Friendly, Royal London and Vitality, offer allowances along similar lines to trauma benefit,
Cirencester Friendly offers severe injury cover as an optional extra on its My Earnings Protected product. Clients will pay an additional premium for this, which means if they suffer 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 ends and the main benefit kicks in. The injuries covered are:
- Amputation/loss of limb
- Brain Injury
- Burns/Scalds (excluding first degree burns)
- Deep lacerations
- Fractured bones (excluding fingers, toes, nose, stress/hairline and pathological fractures)
- Loss of sight
Royal London also provides a feature where it will pay benefits, after the deferred period, where clients are suffering from one of six serious illnesses and are unable to work in any capacity.
This should make it easier for clients to claim as there are no onerous requirements such as being unable to complete the material and substantial duties of their own occupation. The conditions this applies to are:
- Complete dependency
- Organic brain disease
Finally, Vitality’s comprehensive income protection plans have a Permanent Disability increase feature that pays clients an additional 10 per cent on top of the standard benefit. The extra amount is payable if the client is diagnosed with a condition that leaves them permanently unable to complete at least three Activities of Daily Living, such as washing and feeding themselves.
However, one of the caveats with this feature is that the total of the additional 10 per cent increase and the normal benefit must not be above the maximum benefit level of £200,000.
Advisers who are weighing up income protection plans for their clients will obviously focus on whether the main benefit meets their client’s personal requirements, as the whole point of it is to provide an income if a client cannot work due to illness or injury.
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.