IFAs are calling for standardisation and clarity over what can be deducted from an income protection (IP) claim payment, saying its complexities make the product difficult to advise on and unattractive to consumers.
The comments follow a calculation by Defaqto which suggests there are 13 different ways providers express the maximum percentage of insurable salary, which is compounded by the numerous different approaches providers take towards deducting other insurance from the claim payment.
Although the treatment of payments such as state benefits and mortgage payment protection insurance (MPPI) is relatively clear in the product literature, Kevin Carr, senior technical adviser at LifeSearch, says particular grey areas exist over the treatment of waiver of premium and family income benefit critical illness (FIB CI).
For example, if someone with waiver of premium is ill and off work and has their premiums paid for them, Carr says it is unclear whether this will be deducted from an IP claim payment.
He believes the lack of clarity is a barrier to sales and an unnecessary complication and he is calling on the Association of British Insurers (ABI) Protection Committee to bring standardisation and transparency into the market.
Nick Kirwan, chairman of the Protection Committee, agrees it is an area the industry needs to think carefully about because IP policies can often trip consumers up at the point of claim.
If consumers take out another form of protection after they have bought an IP policy, Kirwan says it is not obvious whether this will impact on the IP claim payment and it means IFAs face real difficulties in answering consumers’ questions about future loans and how much they will be paid.
He states: “We need real clarity about the rules of aggregation. There are no standard rules and it is up to individual insurers and each policy. It is an area of particular complexity.”
Likewise, Kieran Platt, director at Life Direct, believes too much information is hidden in the small print of IP policies, which makes the job of advising difficult.
“We don’t want consumers to take out a policy and then complain later. Providers need to make it clearer in their product literature when a consumer will be paid in full,” he states.
Although it would be “ideal” if deductions were standardised across the board, Platt suggests it would be difficult to get all providers agreeing to this and, in the meantime, says it would be sufficient if providers make the information clearer at the outset.
He suggests they could produce a document like a key features document, which clearly shows what situations could result in a claim not being paid in full.
Alan Lakey, partner at Highclere Financial Services, says the complexity surrounding IP is one of the reasons why consumers are not attracted to it and he believes there should be a re-design of the principles behind the product.
He says particular difficulties can arise when consumers are self-employed because the policy often has to be based on an assumed income, which means if the consumer does not actually earn this amount they will not qualify for 100% of the claim.
But Emma Parker, press officer at the Financial Ombudsman Service, says the majority of cases reaching the ombudsman are about consumers’ claims being turned down, rather than calculation of deduction issues.
In the year ending 31 March 2005 980 IP cases reached the Fos, compared with 872 the previous year, and of those around 100 were calculation claims.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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