Case study: Han

Han’s primary occupation is regarded as class two. He has a second occupation that is a class three. 

If he wanted to cover both occupations and with both being acceptable the insurer might amalgamate the salaries for both, but base the price on the class three occupation.

Myth 3: I can cover all my client's salary

An income protection policy will not cover a 100 per cent loss of a client’s income, instead it will cover a percentage of their earnings before they went off work sick.

Many insurers also include what is known as a ‘minimum benefit amount’ within their income protection policies. This is a safety net for clients who are earning less at the time of a claim than when they took out the cover.

Case study: Katja

Katja is an employed management consultant earning £50,000 a year.

She takes out an income protection policy for £32,500, which is the maximum amount of cover available from the insurer. The policy has a £1,750 minimum benefit amount.

After five years Katja makes a claim, but has since changed occupation and has had a drop in earnings to £25,000 per year. 

The normal maximum amount of cover available from this insurer assuming a salary of £25,000 is £16,250 (or £1,354 per month). As this is less than the insurer’s £1,750 per month guaranteed payment the insurer would pay Katja £1,750 per month.

Statistically, the risks of taking two or more months off work due to an illness or an injury are higher than premature death or being diagnosed with a serious illness, which is why it is so important that as an industry we keep discussing income protection with clients.

Life changes at an alarmingly quick rate and a change in occupation, salary or sick pay entitlement might mean that an income protection policy set-up for a client is no longer as suitable as it once was.

You should also be encouraging clients to inform their insurer if they do experience these types of life events as soon as they happen.

Gregor Sked is senior protection development manager at Royal London