The APH Team reviews the own occupation definition used in income protection policies
Own occupation definition is the far superior option when looking to purchase income protection. As the name suggests this definition protects you on the basis you cannot do you own occupation.
This is how it should be. When you suffer an illness or accident the last thing you need is to be fighting an insurer on your ability to be able or unable to do a set number of tasks. The whole idea of income protection is to cover your income if you are unable to work through sickness or accident.
The own occupation definition can pay between 88 to 100 per cent of claims received by UK insurers with refused claims being for non-disclosure or not meeting the terms and conditions. The lower end of the payout figures could be slightly misleading as these figures will include the ‘useless’ definition activities of daily living or work tasks.
Zurich for example paid out 100 per cent of income protection claims during the first half of 2014, which left no policyholders out of pocket and their incomes fully protected.
angrypolicyholders.com supports income protection insurance but with the caveat that it is underwritten on an own occupation basis. Even though own occupation is superior in every way you still have to be careful when buying this product.
During the Angry Policyholder campaign against activities of daily living and work task definitions, insurers such as Aviva moved to 100 per cent of new policies being underwritten on own occupation but others claimed the same but the devil was in the small print.
Scottish Provident for example now offer own occupation on new policies, but they only honour this for the first twelve months. After a year your claim will stop being assessed on your inability to do your own occupation and revert to activities of daily living / work tasks.
Policies which are not underwritten on your own occupation throughout any claim until you are able to return to work or the policy expires should be avoided.
If you are one of the following an not offered own occupation we would strongly advise you look elsewhere as these occupations with a large number of others are now able to be underwritten on an own occupation basis without having to revert to a lesser definition:
Because own occupation is the ‘Gold Standard’ definition premiums will be higher. There are ways to decrease premiums to make them more affordable. When taking out income protection it is always advised to look at your current employment contract to see how long your employer will pay you your full wage if you are absent due to an illness or accident.
The public sector for example can pay your full income for six months with some private sector employers covering 1 to 3 months on full pay. Increasing deferred periods from a day or week to 4,8 or 12 weeks will see premiums fall with the longer the deferred period seeing the biggest fall in premiums.