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Govt looks to create ‘simple’ income protection product

Treasury 480

Advisers are wary over plans for a simple non-advised income protection product.

The simple financial 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.

In its interim report, published last week, the group says it is interested in developing a simple, non-advised 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 the age of the applicant. Deferred periods of between four weeks and 52 weeks would be offered.

There would be no underwriting related to earnings for cover of up to £1,000 a month. People applying for cover of more than £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.

Master Adviser senior partner and member of the Income Protection Task Force Roy McLoughlin says: “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.”

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