Barriers you’ll come up against
As with any product, you clients may feel that Income Protection for any number of reasons. However it might be worth nothing a few common misconceptions connecting to the need for Income Protection.
- "It won’t happen to me"
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Whilst many people believe that they will always have the ability to work and to earn an income it may surprise you to realise that over 2.4 million people in the UK were claiming incapacity benefit in May 2007 - over 1 million of these had been claiming for more than 5 years.
- "My employer will provide for me"
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Unless your clients’ employment contract provides for more, your clients’ employer is legally obliged to support them if they become incapacitated for the first 28 weeks only. What’s more, they can choose to pay only as little as the statutory requirement of £72.55 per week 1, which may be a significant drop in income for them.
- "The State will provide for me"
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It’s true the State does provide a level of incapacity benefit, however, it may not be enough for your clients to maintain their current lifestyle.
During October 2008 the Employment and Support Allowance (ESA) replaced Incapacity Benefit.
Under the ESA for the first 28 weeks, for employees earning over £90.00 a week the statutory sick pay is £75.40.
After 28 weeks, ESA will come into effect. With the exception of those who are terminally ill, an Assessment Phase takes place over 13 weeks, during which claimants undergo a Work Capability Assessment (WCA) focusing on what they can do rather than what they cannot, and receive an age-related benefit (equivalent to the Jobseekers’ Allowance). This is £47.50 per week for ages 16-24 and £60.50 for those over 25.
At the end of the Assessment Phase (41 weeks after initial incapacity), the Main Phase commences and dependent on the outcome of the WCA, the claimant will be eligible for one of three levels of benefit:
- Level 1 - £60.50 per week* = Base ESA
- Level 2 - £84.50 per week* = Base ESA plus the Work-Related Activity Component (WRAC)
This is the same as the former rate of State Long-term Incapacity Benefit. Circa 90% of eligible claimants will receive WRAC and therefore it will be a requirement for the claimant to undertake work related activity such as work focused interviews. Failure to comply with these measures will result in a proportionate reduction in benefit. - Level 3 - £89.50 / £102.10 per week* = Base ESA plus the Support Component
It is expected that the 10% most severely incapacitated will receive this - the poorest in this group will receive a guaranteed income of £102.10 per week*.
All figures quoted are applicable from 1/10/08 and are subject to change.
- "I’m already covered with my Critical Illness policy"
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Most Critical Illness policies pay out only on an average of 30 defined conditions, leaving a number of key areas, most notably mental illness and most musculoskeletal conditions, uncovered.
- "With all my other policies, it’s too expensive"
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Aviva’s IP cover needn’t be expensive, because you can tailor your clients’ cover to suit their budget. It is one of the most competitively priced products on the market and can cost from as little as £10 a month, and can assist your clients in continuing to pay for other insurance policies or investments.
- Option 1 - They can opt to cover up to 60% of their gross earnings up to a maximum of £180,000 per annum. However, choosing a lower percentage will reduce the cost.
- Option 2 - Increasing the deferred period will reduce the monthly cost to your clients. Income Protection from Aviva offers a choice of 4, 8, 13, 26, 52, 56, 104 or 112 consecutive weeks as the period that your clients can wait before their benefit becomes payable.
- Option 3 - With Income Protection from Aviva, you can choose the age you wish to stop receiving benefit - any age from 50 to 70. Obviously, the earlier you stop receiving benefit, the lower the monthly cost to you.