The plan can protect up to 60 per cent of earnings if people are unable to work through accident or illness. It has no loadings for occupation, gender, smoking status or dangerous hobbies.
According to Cirencester, flexibility is vital to income protection plans because it is difficult to predict future income protection needs. As a result it has based this plan on a menu of options, allowing policyholders to make decisions when they need to in relation to the investment element, the definition of incapacity, the deferred period and extras such as inflation proofing. Where an investment element is taken out, the protection element can be dropped if no longer needed, while the investment is kept going.
If the investment element is selected, policyholders will pay an extra premium to receive tax-free bonuses, which will build a capital sum that is payable when the contract matures. . If the investment option is selected and the contract closed before the maturity date, a penalty will be paid out of the balance.
To qualify for the plan, people must earn at least £4,500 a year. The exception is housepersons’ cover, but this benefit is limited to a maximum of £2, 730 a year, which is the minimum benefit payable under the contract.
The houseperson definition of incapacity is designed for people who stay at home to look after family. For a successful claim, the houseperson must be confined to home or hospital and unable to carry out their usual duties such as cooking, cleaning and ironing.
People who choose an own occupation definition must be totally unable to perform the job they have been doing in the last 12 months for their claim to succeed. An own/own suited definition means people will receive benefit if they cannot do their own job, but if after first 12 months of claim they can do another suitable occupation, the benefit will stop.
Although the plan is flexible, it inevitably has some limitations. For example, inflation-proofing not available to housepersons because the maximum level of cover is fixed at £2,730. However, benefit will not reduce over the duration of the claim.
The least onerous own-occupation definition of incapacity is also subject to limitations, as benefit will be reduced by 25 per cent after the first 52 weeks and by another 25 per cent if claim lasts another 52 weeks. However, full benefit will be reinstated once a 52-week period of no claims has passed.