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IP insurers must do more on own occupation

Since Lifesearch reinvigorated the debate over what defines activities of daily living last month, there has been a lot of discussion about the use of ADL as an occupation definition for income protection and critical illness. The Specialist Protection Adviser forum on LinkedIn received its longest thread on the issue and the debate has continued in the pages of trade media.

Is ADL an anachronism? If not, why do some advisers feel it is better to choose a reviewable own-occupation definition than a guaranteed ADL policy? The problem with work-based definitions is that they are not as customer-friendly as own-occupation, yet there seems to be no real reason why all insurers cannot offer own-occupation.

Cost is an issue because insurers will have to offer own-occupation policies at a higher premium. But an own-occupation option could be priced into a policy and, if it is too expensive, advisers have the option to reduce the cover or term for their client.

A solution for insurers to help advisers avoid this conflict would be to offer manual workers both own-occupation and work-based definitions and let them choose, with the help of their adviser, which one is right for them. After all, is there such a thing as too much choice?

Some say it adds to the confusion but IP is not sold on its simplicity and if all, instead of just a few, insurers offer own occupation, surely that would make things more standardised and not more complex.

The retreat of the welfare state makes it more important than ever that we get the message out that a personal protection policy is vital and that we back this up with high quality products that pay out instead of creating a succession of negative headlines.

The welfare state cannot be relied on to deliver anything other than the minimum of safety nets. Consumers do not realise their standard of living and repayment on debt, like a mortgage, would be difficult – if not impossible – to maintain if welfare payments were solely relied upon.

If the industry is going to offer up a viable solution, we need to make sure it will do what it says on the tin. Own-occupation definitions from all providers on critical illness and IP policies is a good solution.

You could say this is being a little harsh on ADL because something is better than nothing, as long as it is correctly advised and right for the client. This is true but there also seems little reason for all insurers not to offer the adviser/client the option of the gold standard of own-occupation.

Matt Morris is senior policy adviser at Lifesearch

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Legal & General do now offer own occupation definition on all occupations. Occuaption classes 3 and 4 and they will pay a valid claim for the first 12 months of a claim based on ability to do own occupation and for this cover to continue after that they would then be assessed on ADL’s. This gives every one the chance of at least 12 months of cover whilst not being able to do their own occupation. Classes 1 and 2 remain own occupation definition if chosen throughout the claim.

  2. Mark Myers British Friendly 6th September 2011 at 4:08 pm

    What ever happened to the classless society? Why should own occupation throughout the claim be the preserve of class1 & 2. We like others are determined that own occupation throughout should be available to all.

  3. Agree, but I have used L&G and at least they are starting the ball rolling by giving all own occupation to all.

  4. Own occupation is the only definition that makes sense and it is excellent that L&G, Ageas and FP have been allowing higher risk occupations to benefit.

    The downside is that the cost is frequently far higher than the client can accept and this is where British Friendly and Exeter excel, with their increasing premium plans.

  5. Okay plans !! Unless you want a fixed premium from the beginning and want to know what you are going to pay throughout the plan which most clients do !! without ongoing increases.

  6. I’ve always held the view that own is right for all.Even if that is limited to 12 or 24 months it allows people to sort their lives out. Life decisions can be made, such as selling up and downsizing. Of course if you had a TPD payment under CI available you could drop the ongoing IP payment to a lower amount for the long term and consequently reducing the outset price of the IP.
    If you are interested in this concept, please give me a call: 07757 167047

    Phil

  7. The point is if you are category 4 risk and you are offered a guaranteed rate premium for £236 p.m. and a reviewable increasing version for £47.60 p.m. then it’s not a matter of preference but one of affordability.

    I always use guaranteed plans for CI but for higher risk occupations wanting IP I find that the guaranteed rates are often unaffordable whereas the friendly society schemes fit the bill.

  8. It seems to this consumer as if insurers are busy defining this as cover that I wouldn’t want to have.

    Twelve months? I have several years worth of emergency funds. Twelve months just raises the cost without adding value to me. If I want such short cover duration I’d buy ASU cover for it instead.

    Activities of daily living? So I’d only get paid out if I was a bed-ridden cripple, not if I still had some decent standard of living? My interest in IP is conditions that I have to live through for decades, trying to maintain some reasonable standard of living. Define IP as incapable of ADL and that defines it as insurance I don’t have a reason to buy.

    Seems providers may be forgetting what IP is for: delivering decades of good quality living after an unfortunate situation arises.

  9. Re: recent protection clients. Xxxxxxxxxx

  10. As above if you were bed ridden after 12 months you would still have a valid claim under ADL’s as you would fail 3 of the activities. In that scenario you would not be able to lift a carry 2.5kg over 5 metres. Bending i.e the ability to load and unload a front loading washine machine, and the ability to walk 200 metres without stopping for breathlessness. So the point being these policies are not trying to stop a claim being paid where possible. Look at the other side you are a plumber and in a freak accident you lose your thumb. Are you now saying that because you cant be a plumber ( your own occupation ) any more you should be paid an Income policy for the rest of your days. Obviously not it has to be a balance. That said I would like to see own occupation available for all and if it costs more so be it at least you have the option.

  11. Pru Protect covers own occupation on their Income Protection element of their menu based protection plan.

  12. FP offers guaranteed premium own definition on all class 3 and 4 occupations.

    If the price is too great then the Friendly Socities deal sounds good.

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