An industry group tasked with developing a range of simple financial products has suggested a simple income protection product should be created for those who lose income due to sickness.
The simple products steering group was set up by the Treasury in October and is led by former FSA director and Lloyds Banking Group chief risk officer Carol Sergeant.
It is also interested in developing a simple income replacement product for those who have lost their income due to sickness, but says further analysis is needed before including this type of product in the initial simple products range.
The group recommends that premiums for a simple income replacement product would be set at outset based on age of application. Deferred periods of between four weeks and 52 weeks would still be offered, though the group feels alternative wording should be used to describe the waiting period from point of claim to when the policy starts to pay out.
Under the plans there would be no underwriting related to earnings for cover of up to £1,000 a month. People applying for cover of over £1,000 a month would have to state that cover does not exceed 50 per cent of their earnings at the time of application.
One, three and five year pay-out periods have been suggested as a starting point for simple income replacement cover. The product could be put on hold for up to a year to allow for career breaks.
The report says: “Because of the complexity of the issue relating to means-tested benefits and other employee benefits, the group did not achieve a consensus on a simplified form of income replacement through non-advised channels, suggesting further consultation was required before it should be launched as a simple product.
“However both the working group and the steering group agreed on the desirability for such a product to be developed and included in the simple products suite and that it would play an important role in the accomplishment of the initiative’s objectives.”
Master Adviser senior partner and member of the Income Protection Task Force Roy McLoughlin says: “I welcome in principle the idea of making income protection easier to understand, and the move to simplify underwriting should be applauded. However offering such a vital product on a non-advised basis could potentially lead to less consumer understanding. One only has to look at the shambles of payment protection insurance misselling for evidence of what happens when important products are sold without advice.”
The consultation closes on 12 October.