According to SwissRe, sales of new income protection insurance policies increased year on year between 2014 and 2018 and by 64 per cent in total over that period.
2020 – the acid test
It’s not unreasonable to expect similarly good results for 2019, however, there is no doubt that 2020 will prove to be a challenging year for protection, but one that will ultimately prove its worth.
One insurer, LV, reports that up to 30 April, it paid out 146 Covid-19 related claims.
These prompt payments to policyholders with short deferred periods will have delivered much needed financial support at a difficult time for them and their families.
Other providers offering short deferred periods will, no doubt, also have positive stories to tell.
Fortunately, most people who contract Coronavirus do not die and, while the symptoms can be unpleasant, recover relatively quickly.
This means that claims in respect of Covid-19 on existing life assurance policies and IP policies with longer deferred periods are relatively few.
However, for the families of those who sadly have died from the disease, their life assurance will have provided much needed support; and for those sufferers with short deferred period IP, again, it is likely they will have been able to benefit from their protection provision.
Deferred periods
When setting up IP cover for clients, one of the key decisions to be made is what deferred period to choose.
For employed people, it is usual to dovetail the deferred period with the employer’s sickpay scheme.
Eligible employees who are too ill to work are entitled to Statutory Sick Pay (SSP) from the fourth day of their absence for up to 28 weeks.
It is currently just £95.85 per week and paid by the employer.
In reality, most employers continue to pay their workers at a rate above SSP for a period of time – their full salary in many cases.
But, research by XpertHR in 2018 found that while 92 per cent of employers technically offered more than SSP, most only do so for four weeks or less.
It is important that advisers ask their clients to find out the details of their employer’s sick pay scheme, if any, before they meet them so the most appropriate deferred period can be established.
For self-employed people, the ideal will most likely be a short deferred period of, perhaps, just one or two weeks, or even day one cover depending on their circumstances.
However, shorter deferred periods are more expensive and advisers may recommend a longer deferred period in order to reduce costs for those clients on a tight budget.
It is important though, in the event of a claim, that the client has other means to tide them over until the IP benefit kicks in, perhaps some savings or a partner’s continuing income.
