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FOS warns brokers to be cautious over sales of income protection

Industry claims that brokers should sell more income protection because it is being undersold should be treated with caution, says the Financial Ombudsman Service.

The watchdog says there is a persistently high number of misselling complaints about income protection policies compared with complaints about critical-illness insurance.

Ombudsman (insurance division) Reidy Flynn says the FOS got 492 complaints about CII last year compared with 872 IP complaints.

This is despite the fact that there are 12 million CII policy-holders in the UK compared with only two million IP policyholders. According to FOS figures, there is a 60 per cent chance that a policyholder will claim on an IP policy.

Flynn says many industry commentators are over-zealous in their drive to promote income protection.

Which? senior policy adv-iser Laurence Baxter says IP is often the better choice for consumers and sales need to be boosted to bridge the protection gap.

Last year, a report from Swiss Re said there was an income protection gap of £150bn and suggested that the product is being undersold.

Part of the reason for the high claims is that IP plans must make clear the definit-ions of a sickness that would incapacitate a policyholder from working.

Life Policies Direct managing director Jason King says: “We have to remember that CII has only been around for about 10-15 years so it is a smaller book of risk. The book of CII is quite immature but in a few years we could see CII complaints rise to the level of PHI.”

Flynn says: “Don’t get carried away with income protection. Most of the complaints we receive are on the way that income protection has been sold and has been for several years. We do not expect the number of complaints to have changed this year.”

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