Does income protection insurance pay out?
I recently penned a blog on the utmost importance of income protection insurance (you can read this here) in an individual’s financial planning.
However, a common theory exists that income protection won’t pay out should a situation arise where a claim is submitted for payment.
This is an opinion I’ve heard on numerous occasions.
I can’t guarantee any income protection claim (or life cover, or specified illness claim for that matter!) would pay out.
I can however dispel some of the more common theories around why an income protection claim won’t pay out.
I’ll also cover some of the different scenarios in which income protection would give rise to a potential claim.
This is because there are some views out there that it only relates to diagnosis of a serious illness.
Quick reminder – What does income protection insurance cover?
Income protection pays a % of your salary as an income should you be unable to work due to illness, accident or injury.
This is an ongoing regular income.
It could potentially pay you up until your selected retirement age on the policy.
Income protection is different from a serious illness policy which typically pays out a lump sum on diagnosis of a serious specified illness.
Recent Claim Statistics & Causes
According to Aviva*, in 2020, the top three reasons for income protection claims were as follows:
- Psychological
- Orthopaedic
- Cancer
And Irish Life**:
- Mental health
- Musco-skeletal
- Cancer
So, we can see from the above, from two of the countries leading providers of income protection that:
- two of the top three reasons for income protection admitted claims are conditions that would not be covered under a traditional lump sum serious illness policy.
Continuing to use Aviva’ statistics, in 2020 Aviva paid approximately €45m to approximately 2,000 income protection claimants with an average age of 48 years old.
56% of all claimants were under 50 at the time of the claim and the youngest claimant was aged 23.
Claims not paid:
Lets stick with Aviva, they declined 8% of income protection claims in 2020.
The main reason for this (4.4%) is that the claim was not medically supported with the second top reason being non-disclosure by the claimant.
As financial planners, we must acknowledge this 8% of non-payment of claims but we must also focus on the positive news of 92% of claims being admitted with over €45m paid in claims.
On the street, you only hear the bad news story that Jimmy down the road’s claim was not admitted.
What Jimmy didn’t add into his story was that he could have potentially non-disclosed a significant fact at the proposal stage that then resulted in non-payment of the claim.
What’s not heard are the good news stories.
The story of the 31 year old mechanic who has been on claim since 2014 for neurological reasons with €120,000 benefit received to date.*
Or the 53 year old sales executive who has been on claim since 2018 with depression with €30,000 benefit received to date.*
Or Marks story (courtesy of Aviva)…….
It’s time the good news stories get the same coverage as the not so good news stories.
So – opinion time, will they pay?
Based on my experience, evidence and the annual claims statistics provided by leading providers, much more than likely yes.
Life insurance companies release claims statistics annually.
They are not out to reject claims, quite the opposite.
I’m confident of that.
All a provider asks is that at the proposal stage, a proposer is open and honest.
If you apply for income protection (or life insurance, or specified illness) with us, we can be annoying and pernickety when getting you to complete the application.
As your advisor, I’d rather be pernickety about it with you at outset.
This ensures everything is in order to reduce the chances of a non-disclosure issue arising should a claim be forthcoming.
Can any of us take the chance to be without some form of income protection?
No.
Whilst we may raise an eyebrow at the affordability of income protection, the fact that Revenue will pay us to have the cover (or as business owners our company can provide it for us), it’s much more attractive than trying to get by on €10,556 per annum.
Book Your Protection Consultation
How we can help you
Do you have an existing income protection policy (or life cover or serious illness for that matter) in place?
If so would you like clarity on the terms and conditions?
Then avail of our second opinion service here
If you would like to protect your income request a callback.
Or you drop me an email directly, francis@fortitudefp.ie or give me a call, 086 0080 756.
We have over 30 individually written articles we’ve written on various financial planning subjects and they can be accessed here.
Francis McTaggart CFP® SIA RPA QFA
These blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
*Source – Aviva 2020 claims statistics
**Source – Irish Life 2020 claims statistics
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