I have noted an increase in the proliferation of short-term income protection (IP) policies, and have several clients preferring it to full IP. Given the return-to-work statistics for the longer-term sick, I worry about selling these products to people who could afford full IP, as they are used as a replacement for PPI by some bancassurers. Could this issue return to bite me at a later date?
This is really where such short-term IP demonstrates itself not to be a replacement for PPI as was.
Probably the most favourable hybrid bringing these worlds together is offered by Friends Life. This allows a client to commute a two-year payout to a term payout with no increase in premium if underwriting acceptance remains after three years of holding the policy.
Yes, wholeheartedly, short-term IP has a place in the market as it is different to the root PPI problems. It is unlikely such a solution could be forcibly tagged onto another financial product such as credit card or loan.
Matt Foster, Ageas Protect
The answer depends largely on what we mean by ‘short-term income protection’.
I sat at an industry conference a couple of weeks ago where it was suggested the label ‘income protection’ fails to adequately explain what the product does.
That may be the case, but the term ‘short-term income protection’ is even less clear in my view. The two types of cover on offer fall broadly into two categories:
1) Traditional income protection with limited benefit terms falls within long-term insurance rules, and
2) Accident, sickness and unemployment cover (ASU) falls under general insurance rules. Limited benefit options have been a common feature of income protection plans for a number of years now. They are similar in most respects to full income protection, apart from the maximum payment term.
They typically also benefit from level/guaranteed premiums throughout the term of the policy, indexation aside.
ASU/PPI plans can be even cheaper than limited benefit IP initially. But the costs increase throughout the term, particularly as you near retirement and where the likelihood of long-term sickness and unemployment is significantly higher.
I believe both products have a valid role to play.
Of course, full income protection offers the most comprehensive cover. But after covering the bases with life insurance and perhaps some critical illness, we are competing for an ever-decreasing share of a customer’s spend.
Anything that can plug the gap – even in the short term – has to be better than having no income protection at all.
