There is a common misconception that harsh underwriting makes income protection more difficult for advisers to place.
Income protection has always had a reputation for being difficult due to the strict view insurers take when underwriting the cover. Even now I still hear “harsh underwriting” as a reason advisers do not offer it, defaulting instead just to life and critical illness cover.
While this may have been an accurate view a decade ago, is it fair to say the same today? Let’s take a look at which is easiest to place for major medical conditions.
According to The Stroke Association, a quarter of all strokes occur while someone is of working age. Among these, there will be a number requiring financial protection against serious illness or disability. The following table highlights the best case outcomes for critical illness and income protection.
|Stroke||Critical illness||Income protection|
|Ischaemic stroke||Decline (unless linked to contraceptive pill)||Normally an exclusion|
|Haemorrhagic stroke||Exclusion||Exclusion or premium loading|
|Transient ischemic attack||Exclusion||Exclusion or premium loading|
The majority of these critical illness applications will result in a decline, as there are very strict criteria on acceptance. Income protection is more likely to result in an offer, albeit this may be with an increased deferment period and will still face strict scrutiny at the underwriting stage.
There are currently over 200 types of cancer, according to Cancer Research UK. Due to the differences of these cancers, the following table only details a few types. With some forms of cancer, it is possible to obtain both critical illness cover and income protection. This will heavily depend of the type of cancer, the staging/grading and the time since last major treatment.
|Cancer||Critical illness||Income protection|
|Breast cancer||Breast and ovarian cancer exclusion||Standard, exclusion or premium loading|
|Skin cancer||Skin cancer exclusion||Standard, exclusion or premium loading|
|Hodgkin’s lymphoma||Full cancer exclusion||Standard, exclusion or premium loading|
In most circumstances, income protection becomes available before critical illness cover for people who have had cancer. There are providers who will exclude cancer but many opt for premium increases instead and, unlike critical illness cover, it is possible to obtain standard terms with some types.
With one in every 16 people in the UK estimated to have diabetes, this is something many advisers will come across. I have often said income protection has more availability for people with diabetes than critical illness, and recent developments have made this even more so.
|Diabetes||Critical illness||Income protection|
|Type 1||Not available||Exclusion or premium loading (less likely)|
|Type 2||Premium loading||Exclusion or premium loading|
Critical illness cover for type 2 diabetics is difficult to arrange and the majority are not eligible for it. Even the relevant insurers openly say that most applicants are still declined.
The advantage with income protection is that cover can be available for people with type 1 or type 2 diabetes. Most type 1 diabetics will see cover come with an exclusion, which is preferable to a blanket declinature with critical illness cover. Type 2, on the other hand, may have the choice between an exclusion or premium increase, based on different insurers stances.
Other areas to consider
There are other areas beyond major medical conditions where income protection can result in more favourable terms too. For examples, clients who take part in dangerous sports such as diving, motor sports or private aviation should be able to get income protection without an exclusion. This is much less likely with critical illness cover. Likewise, a recreational drug user is more likely to get income protection than critical illness.
That said, it does not always come up top trumps. Conditions like arthritis and hypermobility syndrome present a much higher challenge for income protection. It is easier to get critical illness cover for clients with high BMIs, musculoskeletal conditions and more serious mental illnesses like bipolar disorder. It is also worth noting that a combination of back pain and any mental illness can result in income protection being declined by most providers.
But income protection should never be disregarded just because critical illness cover is not available. You may be surprised at what can be offered. Add in the flexibility of reduced claim periods and multiple deferment periods and you should find something to fit the budget of most clients.
Alan Knowles is director of Cura. Follow them on twitter @Kathryn_Cura & @AlanK_Cura