In reality, much IP business is written either on a 13 week or 26 week basis. A straw poll by Defaqto among insurers reveals that between a third and half of traditional long term IP is accounted for by 13 week business.
This is most likely because the insurers price the product at that level making it the cost-effective option for many clients.
Defaqto’s own data reveals that advisers frequently sift on the 13 and 26 week deferred period criteria, but far less on 52 week, 4 week or 8 week; and 1 week and Day 1 cover are rarely selected.
| 13 weeks/3 months | 14 per cent |
| 26 weeks/6 months | 8.8 per cent |
| 52 weeks/1 year | 5 per cent |
| 4 weeks/1 month | 4 per cent |
| 8 weeks/2 months | 0.9 per cent |
| 1 day | 0.6 per cent |
| 1 week | 0.3 per cent |
Percentage of sifts on Defaqto Engage relating to deferred periods. Source: Defaqto.
Fortunately, a significant number of employers do pay full (or reduced) salaries for extended periods.
XpertHR’s research shows that just short of 10 per cent of firms offer sick pay for three months and 7 per cent for six months.
Also, the mass affluent, typical of clients of financial advisers, are perhaps more likely to work for such firms, hence the focus on 13 and 26 week plans.
When it comes to the self employed and those who don’t benefit from an employer’s scheme, the emphasis is much more on short deferred period plans.
Short deferred periods
Of the 22 IP providers on Defaqto’s Engage database, there are 13 that ordinarily offer shorter deferred periods – for example, 1 week, 2 week or Day 1 cover.
These include the Friendly Societies and Provident Societies as well as some specialist IP providers that typically cater for blue collar workers and the self-employed.
The experience here is different with our straw poll demonstrating that much more business is written on a 1 week or 4 week basis than 13 or 26 week, especially for limited payment term products.
The use of age-related premiums and in some cases reviewable premiums helps to make this cover more affordable for people who potentially have no other financial support if they couldn’t work.
As a result of the Covid-19 crisis, eight providers stopped accepting new applications for Day 1, 1 week and 2 week cover, and in two cases, 4 week cover.
This was presented as a temporary measure and it is anticipated that these options will become available again at some point.
However, four providers have retained their shorter deferred periods choosing instead to apply an exclusion relating to Coronavirus.
For new applicants, this means that shorter deferred periods are still available in the market, although they would not be able to claim for absences from work due to Coronavirus.
For existing policyholders, they would be able to claim; and all policyholders can benefit from the counselling and support services integral to these policies.
