From The Times, Times Money, 21 May 2011 (story by Laura Whateley)
If you’re able to perform simple daily tasks, certain income-protection insurance policies are a waste of your money.
Homeowners face the prospect of being left without the means to pay their mortgages if they fall ill after being sold unsuitable income-protection insurance, Times Money has found.
Experts say that many insurers and brokers are selling cheap “work tasks” policies that disqualify claims if an individual is well enough to do a series of simple tasks, such as holding a pen or carrying 1kg for 5m. Critics argue that these tasks are so simple that most people would have to be seriously incapacitated to qualify. People buy these policies believing that they will pay out if they are unable to do their current job or something similar, but many are sold without clear explanation that they rarely cover loss of salary and, therefore, are suitable only for those who are unable to get any other type of income protection.
Ray Black, an independent financial adviser and founder of money-minder.com, a comparison site, says: “In 12 years of providing independent financial advice I have never found a work-tasks-based income-protection policy to be the most suitable product for a client.” Fears over how these policies are being sold come as the banks prepare to refund customers billions of pounds over the missale of payment protection insurance. Millions of customers were sold policies that they were ineligible to claim on or they were falsely told that they had to buy the cover to qualify for a loan.
Chris Hargreaves, 32, was stunned when Scottish Provident declined his claim for loss of earnings even though he was unable to run his chauffeur business for six months. Mr Hargreaves spent three months in and out of hospital after he suffered internal bleeding and a blood clot on his lung. He believed that after paying £13 a month for five years for an income protection policy that he was sold by a broker, he would receive a payout should doctors decide that he was unfit to work. He had statements from three consultants and his GP confirming that this was the case. But his claim was turned down.
He says: “The broker never explained to me that this insurance would not cover me for not being able to do my own job, just a list of set tasks. The financial pressure that this has created has caused serious problems for me and my wife.”
To qualify for a payout, Mr Hargreaves needed to prove that he was unable to complete at least two of six listed work tasks for six months. These were: walking 200m on a level surface with a stick or other aid without stopping or severe discomfort; picking up 1kg from table height and carrying it for 5m; using a pen, pencil or keyboard with either hand or any aids; hearing well enough to understand someone speaking a common language in a normal voice in a quiet room with a hearing aid; being understood in a common language in a quiet room; seeing well enough to read 16-point print using spectacles or other aids.
He says: “You’d have to be comatose to be unable to do two or more of those tasks over a sustained period. I was shocked that my inability to do my job was irrelevant. I took out the policy in good faith and, as I was so ill, I thought that it would be a perfect case for a valid claim.”
Income-protection insurance is designed to provide a tax-free income which could cover mortgages and other bills should policyholders be unable to work because of an accident or illness. Gold- standard policies insure a customer’s “own occupation”; claimants who are unable to do their own job because they fall ill could have their full salary paid — or a proportion of it — if they can provide medical evidence.
On the other hand, policies assessed on work tasks or activities of daily living (ADL), such as washing or dressing, will pay out only if a claimant is too ill to undertake a number of physical tasks. Emma Walker, the head of protection at Moneysupermarket.com, a price comparison site, says that “completion of tasks” is only half the story as most claims are stress related. “Someone may be able to do technical tasks but emotionally or mentally they and their GP do not feel that it is appropriate for them to be in the workplace,” she says. “In this case income protection is needed once their full salary has expired. If customers require peace of mind that under any eventuality of illness their claim will be paid out, this product isn’t suitable.”
Work tasks or ADL policies are primarily aimed at customers who insurers deem too risky for ownoccupation policies. This includes manual labourers or people who do not have a defined occupation, such as those who care for children at home. Yet at some insurers up to 40 per cent of income-protection policies sold are work tasks based.
A spokesman for Ageas, which offers ADL insurance, says that it is a “hugely beneficial” product as it enables certain customers to have cover rather than none at all. However, as Mr Hargreaves found, they are also sold to workers who would have no problem buying other types of income protection. The Association of British Insurers does not keep statistics on the number of work tasks or ADL policies, but Matt Morris, of LifeSearch, the life insurance broker, says that only about half of insurers make “own-occupation” policies widely available.
Continued from page 57 Mr Black says that there are many reasons why these policies are sold to the wrong people. “Salespeople could offer them because they’re cheaper, even if they’re not the most suitable. Others simply won’t know the full complexities of the different types of protection products. Also, some customers may mis-buy them because they have looked purely at the cost, not the cover provided and the conditions attached.”
Mr Morris agrees. “The work tasks or ADL definition can be confusing for consumers and lead to declined claims,” he says. “Unfortunately, because it is a complex system many brokers do not offer customers the option to insure themselves against own-occupation first.”
He says that own-occupation should be available for everyone, though that could make income protection “very expensive” for some high-risk professions. “Insurers should offer a two-tier system, offering the client ownoccupation cover and, if they cannot afford it, ADL as a cheaper option.
“Any white-collar office workers who aren’t getting own-occupation insurance really are getting a bad deal.”
Julian Shafee’s family discovered this the hard way. He says: “When we moved house and increased our mortgage, we were advised to cover the increase with an insurance policy in case of serious illness. We bought a Scottish Provident policy. My wife had M.E. diagnosed in 2005 and her ability to undertake many daily physical tasks has steadily decreased.”
He says that the couple put in a claim after talking to her GP. But they did not realise that the income protection policy they had been sold was assessed on work tasks. “At the time we were not made aware that it was possible to have any other type of income protection.”
Before her illness Mrs Shafee was a paediatric physiotherapist and looked after their three children.
Mr Shafee says: “M.E. is an unpredictable condition and while Scottish Provident accepts that my wife cannot undertake the mobility task, it is now suggesting that being able to complete the keyboard and lifting tasks occasionally is sufficient. If my wife does any of these three tasks today, it is highly probable that she will be unable to do so the next day. Some days she cannot get out of bed.” He adds: “It appears that Scottish Provident is suggesting that it will be possible for my wife to find work with an employer who will allow her to use a keyboard for a short time on Monday and then not again until Thursday.”
If you are worried that you have incorrectly bought a work-tasks policy, or you are looking for the most suitable protection, you should seek independent financial advice and always make it clear that you want protection for your own occupation.
Mr Black adds: “Some people will have these policies because the premiums make own-occupation cover prohibitively expensive. Carpenters, builders and so on may be able to get better cover through traditional friendly societies.”
COVER YOU CAN COUNT ON
• When searching for income protection insurance make sure that you do not confuse it with critical illness cover, payment or mortgage protection, which cover only a specific debt. Income protection will pay out a proportion of your salary until you are well enough to go back to work or until the end of the policy term, whichever is longer.
• The price of income protection policies varies considerably so read the small print. All policies offer differing deferred periods, the time that you are off work before the policy kicks in.
• Which? has a best-buy list that includes only providers who pay out on ability to do your own job or a job for which you are trained at which.co.uk/money/insurance.