Income Protection Insurance Policies
There are two types of Income Protection Insurance Policies:
- Guaranteed – where the premiums remain constant.
- Reviewable – where the premiums are reviewed in light of the insurer’s claims history.
When an insurer reviews the premium under a reviewable IPI contract, it is connected with the claims experience of the insurer – not the health of the policyholder.
Reviewable Income Protection Insurance Policies
Where a Reviewable policy is sold, the ABI states that the consumer must be made fully aware of the reviewable nature; the reasons why this type of policy is being recommended and how the review process works.
Renewable Income Protection Insurance Policies
The features of Renewable IPI policies are:
- structured over a short term (eg, 5 years)
- guaranteed renewal at expiry
- insurer cannot decline to renew contract
- premiums will be revised at renewal in line with insurer’s current rates
Income Protection Insurance Policy Claims
IPI policies pay out until the earlier of a return to work, the end of the policy or death.
Where a claim has been made that does not include death, the insurer will require periodic medical certificates for the claim period and provide incapacity counsellors to monitor claims.
Cover Outside The UK
When an Income Protection Insurance policyholder resides temporarily outside the free limits, the policy benefit will not be payable for more than a few months (usually 3 or 6 months) and the insurer may require the insured to return to within the free limits if they make a claim.
Group IPI Schemes
Group IPI schemes are preferable because they provide a higher benefit of up to 75% of income. The reason for this is that the employee will have to pay tax on the benefit received from the employer.
Due to increasing costs and poor claims experience, policies with a maximum claim period of, say, five years are preferred
Contributions Under Group IPI Schemes
Contributions under Group IPI schemes are not taxable on the employee as a benefit in kind and allowable as a business expense for the employer. Payment of the claim to the employee is made after tax & NI.
Where the policy premiums qualify for tax relief as a deductible business expense, payment of the claim to the employer (eg to hire a locum) is a taxable business receipt.