Income protection (IP) has scope for a money-back guarantee so the premium is returned to the consumer in the event it does not pay out as expected, delegates heard at the launch of the IPTF's Signposts for Income Protection.
Theresa Fritz, an independent consultant and member of the Financial Services Consumer Panel who previously held roles in Which? and Moneyvista, made these comments during a Q&A session in response to Nick Kirwan and Alan Tyler's session on welfare benefits.
Income protection insurance is taken into account as a source of income and may affect the level of state means-tested benefits a person off work through sickness, disability or injury, is entitled to.
The IPTF had launched a new modelling tool which demonstrated more people than previously expected could benefit from taking out IP.
Fritz argued that should this be the case, IP products should be fitted with a guarantee, to provide more certainty for consumers.
This would provide an option of premiums being returned to the policyholder should the product not pay out as expected, or should it have an adverse effect on state benefit entitlement.
She said: "There should be a simple underlying guarantees on simple IP products if you do find yourselves in that position, then you should have the option of having that premium back. The big fear from consumers is taking out a policy they cannot claim on."
Katharine Moxham, spokesperson at Grid said: "I am not sure the Department of Work and Pensions or Treasury would take too kindly to the view of returning insurance."
Another delegate warned such an approach might send the wrong message. She cautioned it may lead the Financial Ombudsman to think IP had been mis-sold in such circumstances.
However Fritz said "it wouldn't be a case of saying the product is wrong at the outset." She noted in many cases advisers and consumers could not foresee a financial situation that a consumer may find themselves in years after taking out the product.
She also said she didn't believe the majority of consumers would have the need to claim IP premiums back but it would be a useful option.
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