Income Replacement Overview
Income replacement insurance is intended to replace some of your regular working income if you are forced to stop work: after disablement or an accident or during illness. Some providers cover unemployment or involuntary redundancy.
Pulse specialise in finding cover when many insurers decline. There are however circumstances such as serious ill-health and deteriorating or unstable health which mean that while Life Insurance may sometimes be available from our Underwriters, Income Protection may not be. Our team of experts will be able to discuss this with you up front, if you are in any doubt, on 01280-841430.
How Income Protection works
The following uses an accident as the example cause of time off work. Depending on the cover chosen, you may also be able to claim in other situations.
Once covered by an income replacement policy, if an accidental injury meant you could not work for some time, a claim may be made.
When buying your policy, you will choose how long a deferred period you want. This deferred period is the period between the accident and the time when payments begin. Typically, choosing a shorter deferred period will increase premiums.
Some people (already) have some protection through their employer’s arrangements. This may provide income for sickness and injury, but not unemployment. The cover may be for enough income or not and pay out for a more limited time than your need for peace of mind demands.
Many people aim for their income replacement policy to provide enough money to pay their bills, rent or mortgage while they are unable to work.
Often, mainstream insurers may decline to offer cover or restrict the sums insured where income includes dividends, bonuses or director’s fees. Pulse recognise that not all income is salary based and particularly self employed people or those working on contract or overseas will have different needs and requirements.
Pulse are sometimes, but not always able to find cover for people with income from a variety of sources. Variable bonuses cannot usually be accommodated but regular dividends for self employed people and directors is generally acceptable as income.
What affects the price and availability of cover?
There are many factors which affect the availability and cost of cover and sometimes the period of cover and deferment period including:-
- your age
- your health and medical history
- your lifestyle (including, for example, if you use nicotine products)
- your job
- if you are self-employed or you are a casual worker
What may trigger the need for cover?
There are some reasons you may need to consider or amend your income replacement cover:-
- if you have taken on any new financial commitment such as a loan or mortagage
- to ensure you and your dependents (especially any new arrivals) are protected
- if your work or other life circumstances change so perhaps decide to work for yourself or start a new role, get a salary boost or change career or go to work abroad or in a more hazardous environment
How does Income Protection work?
Income Replacement protects your income in the event of you being unable to work for a prolonged period of time; often due to at least accidental injury or sickness.
It is a specialised product which can be purchased to insure yourself or a key person or group of company employees, for example.
It has two key benefits;
- Should a claim be made within the policy period, a monthly benefit can provide regular alternative income if your salary stops. This is known as a Temporary Total Disablement (TTD) benefit will be paid for up to a maximum of 5 years following a selected deferred period.
- And in the worst cases where an injury does not heal enough or your illness really prevents your return to work, a lump sum may be payable. This is known as a Permanent Total Disablement (PTD) benefit and it typically will be paid at the end of the 5 year period should you be unable to return to work. The cover is usually purchased on an “own occupation” basis, which covers the insured person for their occupation only (which means that the policy will pay out if the client can no longer perform that occupation and the fact that the person could do an alternative job is not taken into account). This is the widest cover. Some insurers may offer “any occupation” cover which will only pay-out of the insured is unable to do any work at all but this can mean that the insured will only receive a benefit if they are injured very seriously indeed. “Own occupation” will pay out sometimes for quite minor injuries, as long as these prevent the person from doing their usual work.
How is Income Replacement offered?
The cover offered is available on an annual basis and the process for renewal is usually simple, with a Declaration of Health and/or a Proposal Form. However, updated Medical evidence may be required if your health has changed in the prior year.
How does the product work in more detail?
Permanent Total Disablement Benefit(PTD)
The Lump Sum that is paid out if you are Permanently Totally Disabled is based on actuarial tables that are in standard use in the Lloyd’s market. However, if this Lump Sum is considered inadequate, we can obtain an indication on an alternative cover basis if you request this.
If you require a specific PTD Lump Sum, we will endeavour to accommodate this, but it will affect the premium charged.
Temporary Total Disablement (TD) Benefit
The benefit will be paid if the insured person is unable to work due to accident or sickness beyond the selected deferred period. A monthly benefit will then be paid for a maximum period of 60 months. The benefit will cease if the insured person returns to work or reaches their normal retirement age (maximum NRD is age 70).
When is Permanent Total Disablement paid?
At the end of the maximum 60 months payment period for a TTD claim, if the applicant is proven to be Permanently and Totally Disabled (PTD), then the lump sum will become payable.
The PTD benefit is used for a variety of purposes. It is for the entirely up to you to determine how the funds are used. For example, it is often used to fund the cost of adapting a home for wheelchair access or other specialist medical equipment required. It may be invested to generate further and ongoing income.
How can I pay my Income replacement premium?
The premium is an annual premium, the first year payable at inception of the policy.
It is not possible to pay on a monthly basis.
Is there a minimum premium on this policy?
No, there is no minimum premium on this policy.
Who might buy this product?
This product is often selected for key persons in a company and the company may well pay the premium.
Having said this, we can also provide this cover for individuals who cover themselves and/or their partner.
Can you cover clients for this product who travel on a regular basis?
Yes. We can cover clients who travel with their occupations, including travelling to Hazardous countries.
What percentage of the client’s salary can be covered?
This product can cover up to 75% of your salary.
However, if there is sufficient justification, underwriters can extend this to 80%.
It is possible to obtain 100% of salary cover in respect of group policies.
Where your salary is uncertain or variable, please contact us to discuss what will be available on 01280-831430.
Is the cover available for a non-UK resident?
Yes, in many but not every case. We are happy to talk to anyone not UK resident and as we always do handle your needs on a bespoke basis.
The geographic scope of this availability is primarily governed by Lloyd’s of London regulations, which change from time to time.
So please contact us if you wish to discuss this on 01280 831430.