Protection Update 1st October 2021
Protection Update 1st October 2021
Hi everyone and welcome to this week’s protection update – Friday 1st October 2021…
We’re talking about Income Protection at the moment and I’d like to thank all of you who attended our Better Sick Pay Schemes workshops this week.
We do still have one more ‘Better Sick Pay Schemes’ Workshop on 20th October.
We got to hear from various providers where there were able to state their case for how to design a personal sick pay solution, with them.
But on that subject, I’ve had a couple of interesting conversations with a couple of our advisers recently.
The first one was with Jonathan Barnett from MortgagesToGo and Jonathan had a young client who needed a long-term income protection solution.
Why long term?
Well, if you look at the company sick pay that this particular client had available to him it was a bit unusual because if he went off sick, he would be paid full pay for 6 months, but hen 60% of his salary for the next 2 years.
What that means is we would need a policy with a 30 month (or 2 ½ year) deferred period.
Only problem is, as far as I’m aware; those don’t exist.
So how do we fix this?
Well, clearly if the client goes off work sick and never works again, there definitely is an identifiable long-term issue because his sick pay reduces to zero after 30 months.
What Jonathan was able to do is deliver an income protection solution which came with a 12-month deferred period. He looked at 24 month deferred periods and there wasn’t a lot of difference in the cost.
He’s made it clear to the client that if he goes off work sick, the full claim would be paid from 30 months. There’s the possibility of a small amount of cover being paid from the 12-month point based on the providers maximum IP calculation limit.
Is this recommendation a perfect solution? Does it perfectly dovetail to the employer sick pay arrangement? No.
But it does solve the long-term IP issue and Jonathan has documented all of this in his suitability letter.
If the client moves job in the future… (let’s say his new employer doesn’t have a company sick pay scheme).
Well, he could look to plug that initial 12-month gap with a short-term budget IP solution. That added to the full IP with a 12-month deferred period would be a pretty much perfect IP solution and it’s in his control – not the control of his employer.
Ninian Duncan – at Dedicated Mortgage Solutions has had a similar type of situation with one of his clients.
This client is paid full pay for 28 days.
Then he is put onto statutory sick pay for the next 5 months which is when SSP automatically finishes.
From the 6 month point he would be paid 75% of his salary for up to 2 years from a company sick pay arrangement.
So again, this one is tricky. There’s clearly a gap from month 2 to 6 because only SSP would be payable and we know the current rate is just £96.35 per week.
75% of salary paid from month 7 would pretty much rule out the possibility of much income protection being payable because maximum IP provider limits are never beyond this level for personal IP protection.
I think it’s fair to say there is definitely a long-term sick pay gap. A 1 month deferred policy with a 12-month payment period could plug that initial gap whilst SSP is being paid, but you would have to make it clear in your recommendation and suitability letter that IP cover would be paid up until the 6-month point.
But then, you could look to Bolt on a 1 or 2-year deferred income protection for the long term cover the client needs.
Income Protection for NHS, Public Sector, Teachers
Now also on the subject of Income Protection, how up to speed are you with Income Protection for NHS workers, Teachers, Public Sector workers?
Over the last few years, we’ve seen quite a few providers develop their propositions to include a solution to an age-old problem.
The most common example is NHS workers such as Doctors, Surgeons, Nurses…
The potential problem from an advice point of view is that it has been historically difficult to set up the income protection plan because of the way the NHS sick pay scheme works.
When you work for the NHS, your sick pay benefits improve during your first few years of service.
If you go off work sick in your first year; the NHS sick pay scheme will pay you 1 month of full pay followed by 1 month half pay. That’s it.
But as you increase your level of service, your sick pay benefits become more generous up until the point where you’ve completed 5 years with the NHS; In that instance you would qualify for 6 months full pay and 6 months half pay.
So, if your client is within their first 5 years of working for the NHS – let’s call it the first year in their career; what deferred period do you apply to the income protection policy? It’s quite difficult.
Do you give them a 1 month deferred period which is going to be more expensive and it only really lines up properly against the NHS sick pay during the first year?
Do you choose a 6-month deferred period which is ultimately what they will need, but won’t line up properly during these initial first few years?
There wasn’t an easy solution to this problem until the providers started to add a ‘promise’ to their Income Protection products and the good news is that quite a few of them have this now.
So how does it work.
Let’s say you’ve got a client who is a junior doctor. He’s just started working for the NHS and he’s within his first year of service.
How much NHS Sick pay does he have right now?
It could be 1-month full pay followed by a couple of months half pay – if he’s been there for 4 months.
What do you recommend?
Well generally speaking and for those providers that have this benefit built into their Income Protection propositions; you would recommend an income protection policy with a 12-month deferred period.
Because that’s what the client is going to need eventually when they’ve completed 5 years of service.
In the meantime, there is a promise from the provider that simply plugs the gap. So, when the sick pay from the NHS scheme stops, the income protection from the provider pays out.
Now we know that the longer you stretch the deferred period; the less expensive the income protection solution is going to cost.
If we look at a 30-year-old, male, junior doctor, non-smoker. Just started working for the NHS and we know he has very low NHS sick pay benefits because he’s right at the start of his career.
Let’s say I recommended £2000 per month of tax free, full-term income protection cover on a 12-month deferred basis with providers who offer this incentive for NHS workers…
The most expensive cover I could find this week (29th September 2021) was £50.36 a month. It’s a really affordable solution because of the way you set these plans up.
I remember a friend of mine, Jeff, a few years ago back in my Friends Provident days used to market this directly at Doctors, Surgeons and other NHS employees.
In fact he used to do a ‘financial surgery’ in his local hospital and he did get lots of business.
Do people who work for the NHS appreciate that people go off work sick? They certainly do, so it’s definitely worth thinking about.
If you want any help pulling together a campaign on this, just give me a shout. I’d be happy to help because there is a really big opportunity in this space.
Royal London – IP for Renters
You should have seen a protection update this week from Royal London talking about the opportunity to for Income Protection with people who rent rather than own their own homes.
Their research suggests there are going to be a lot more people renting in the next few years than we’ve seen before. In fact, in the last 10 years, the number of renters has actually doubled.
And of course, there is the natural protection angle which is “how are you going to maintain your rental payments, if you lose your income”.
Income Protection can provide a very simple and effective solution to that problem and it’s good to see providers adapting their products to help you in that market with things such as guaranteed insurability options that allow you to increase cover on Income Protection, when the client sees a rental increase.
Royal London Income Protection update >>
This weeks ‘Protection Insight Podcast’ – how to find the IP budget for Self Employed clients
To support last week’s Income Protection awareness week, you may or may not have seen (if you pay attention to social media) that we published externally and it was all about my National Insurance Calculator.
If you don’t know what that it, it’s a tool that helps you find the income protection budget, specifically for self-employed clients.
Protection Insight Podcast – How to find the budget for self-employed clients! >>
So, I’m not going to be here next week. I’m taking a week off, but I do have a couple of podcasts for you so please watch this space!
Have a great weekend, and I’ll see you when I return in just over a week.
