Kathryn Knowles  00:11

Hi everyone. We’re on season 10, episode four, and today we’re going to be talking about simplified income protection options for your clients. This is the practical protection podcast. So

Kathryn Knowles  00:32

I’m just getting straight into things, but I am recording this in the middle of February, half term, and I have three children in the background. So I’m really, really hoping that I get through this in one take, without any interruptions, that there is bribery with iPads, which I’m sure many of us are very, very familiar with. Okay, so let’s get into things. So income protection, it is what we expect it to do. It is protecting our income and very specifically, if we are ill and unable to work, it’s all to do with loss of earnings due to ill health, and that can sometimes be a bit tricky, especially if you’ve got people like managing directors, because you can find, depending upon the size of the business and things like that, that they might be too ill to work, but they might still be able to draw salary or and dividends because of the fact that They have members of their team who are able to carry on the business for them, and that can prove quite tricky to claim. So there does need to be some kind of financial loss to be able to claim on an income protection policy. You would usually need to be signed off work by a medical professional due to ill health, and that would typically be a GP. And there have been changes in the medical profession, starting a little bit where maybe physiotherapists or other medical professionals can potentially sign people off work and due to ill health. And that’s very, very new development.

We are early 2025 when I’m saying this, and there hasn’t been much in terms of time period, in terms of claims for us to establish how that’s going to work long term for an income protection claim. So it would usually need to be the GP, and it’s also important to say it does depend upon the reason there was a big debate, let’s say, or questioning in the last couple of years over stress and income protections is a really big one. It’s one of the biggest areas. Mental health is one of the biggest areas that claims are done for income protection, and different insurers see stress in different ways. So I’m side stepping a bit from simplified income protection. So just bear with me and but stress in itself. Some insurers see stress as a medical condition, and obviously each claim is looked at in its own merit. But you know, quite a few insurers will say, you know, if you are stressed, if you’re signed off work, then we should be able to support you with an income protection claim.

You then have other insurers who will then say, well, stress itself isn’t a medical condition, it is a symptom. And that might seem quite debatable, but actually, when you look at the NHS, when you look at mental health charities, they they do tend to say, even in those organizations, that stress is a symptom, not a medical condition, and and so some insurers will say, Well, look, we we cover claims relating to diagnosed medical conditions, not symptoms of a medical condition. So we can have some kind of gray areas sometimes. But anyway, back to the simplified IP side of things. So and in terms of income protection, just be very, very clear. It is about being ill and unable to work. It isn’t loss of earnings, it isn’t loss of contracts, it isn’t redundancy cover. There are other insurances that can potentially cover those areas. So when we look at simplified income protection, we’re really looking at the insurers British friendly and shepherds friendly. There are other insurers that do similar kind of, similar type of things, I say similar in the fact that they’re not actually simplified income protection at all, but they’re just, they’re not the full mainstream income protection. So you have things like MetLife, mortgage safe, which is specifically linked, you know, to people who have a mortgage to their mortgage repayment value.

You have things like National friendlies, accident only cover, which is, you know, protecting income, but just purely for those instances of it being an accident, nothing to do with illness. And then we did mention a previous episode about accident, sickness and unemployment. Cover, now ASU sits within General Insurance, so it does have a different rule set to income protection, which sits in protection insurance rules. But ASU does have a time and a place, and there was a really good example of that in the last episode about social media influencers, about where it can be very, very useful for clients. So simply. Provide income protection. They are income protection policies. So here are some really specific points that you want to know.

So generally, they are good for smokers, as they don’t usually rate for being a smoker. So as most of us will know, if you are a smoker now, that can be classed as any form of nicotine in the last 12 months. It can, with some insurers, go up to the last five years that we might see a rating for if within the last 12 months, you’re pretty much going to see double the premium for any of the policies, the life insurance, the critical illness or income protection. So with the simplified IP options, we’re going to be seeing. You know, because those insurers, the way that they operate, we’re not going to be seeing that kind of really high premium, which is, it’s certainly going to be attractive to clients. We have the fact that occupation classes don’t tend to matter. So with mainstream IP, if you put in an insurer into a good one, that I sometimes do is Legal and General Go on to there, go to Google Legal and General occupation class guide, and you’ll get a PDF with an astronomical amount of occupations in there, and it’ll have the numbers between one and four assigned to them. One is the least risky, and four is the highest risk. And what’s quite interesting is how much I do training on this is how much occupations will sit in different numbers that you you wouldn’t expect. And just for anybody who was an advisor and listening to this, just so you know, we’re usually classed as occupation class two, and due to the pressure of being in a sales kind of industry and and the scene is like the high risk of potentially mental health.

So simplified IP the occupation class, you know, it just doesn’t really even sit there. It’s just kind of just not there. And you do find that generally across the friendlies as well. We did an episode again, a few sessions ago with Simon sister friendly and, you know, it was mentioned there with Caroline. How, you know, they don’t take it into account. There’s no they just don’t have occupation classes. They just assess people for the way that they do. Basically, they don’t take it into account. I’ve got a good example of how the occupation class can really change the options for your clients. We then have what I feel is obviously one of the key things with simplified income protection, and I feel like there needs to be a Dun, dun, dun kind of sound, but I’m not smart enough to do that with my sound editing software. And what’s known as the killer questions when it comes to simplified income protection, and that is where you get a question that says, do any of these apply to you kind of situation, and if you answer yes to any of them, then you can’t have the simplified income protection option. If you can answer no to all of them, then you can. So the insurer, when they have the sim five killer questions, they are they are looking for some really key things. So as an example, cancer within a certain period of time, things like chronic fatigue, fibromyalgia, heart attack, strokes, Parkinson’s disease, Alzheimer’s, paraplegia, things like that, heart some heart conditions. There’s quite a few different things. And you might think, well, what is left?

There are actually quite a few things that are left over. So it’s certainly worth having a look at, you know, if you’re maybe seeing somebody with a condition, either the mainstream insurers are saying, No, we can’t ensure this, or is proving to have, like, a really high rating, things like that. It is definitely worth knowing what you can get with these simplified routes, maximum sum assured. So with British friendly, through a simplified route, it’s £3,250 per month. With shepherds friendly, it’s £2,800 a month in terms of the benefit that we can potentially arrange for clients through this route. Premiums are different to what we would see mainstream in in some ways, in the sense of the for the simplified income protection, they are going to be either reviewable or guaranteed, and they will be age costed. So that means that each year, as the person gets older, that the premiums are going to be getting higher, which, you know, it’s, it’s, it can be quite interesting sometimes when you see this, I know I’ve spoken about examples before about things like this and and it can really be huge differences over time. But you you know in terms of, like the keeping this super, super long term. But there can be times where, say, you’re looking at something like this, a simplified income protection route, and the premium is so much cheaper than going for a guaranteed mainstream option that it would take, you know, maybe 10-15, years sometimes, to get near what that mainstream premium is. And that’s quite a long time of paying a higher premium. I mean, you do have to then prepare your clients and, you know, sort of make sure it’s clear. To them that if they if they take something like this option, it’s going to cost far better. Now that is going to be very attractive to a lot of people. It does mean as well that for quite a lot of people that they can afford the income protection, whereas if there was only the mainstream options, they wouldn’t be able to afford it. But they just need to know that at certain point, this premium will be similar to what it would have been now, and eventually it could go higher than that.

Kathryn Knowles  10:26

The term for these options, for simplified income protection often goes up to around age 70. Do keep an eye out as well, because you can find that with some of the options, with the friendlies, that whether or not you do the policy to age 68 or age 70, it’s the same price. And if that is the case, and you kind of think, well, we may as well go to age 70, just in case this person works bit longer. But also, if they do need to make a long term claim, and it is going to be something that’s going to pay to retirement, then you’re giving them an extra two years worth of income there, which is is a useful thing to do. So I say that. So just I’m saying long term claim there, however, simplified income protection as its specific route. The claim length is one, two or five years. So the insurer is opening this up to the simplified income section, which does open it up to a lot of people who would not be able to get cover mainstream due to their health. And part of the way to kind of make that in some ways commercially viable is to say, right? Well, the claimant is going to be for this long. You know that the premiums are actually really, really good. They’re very, very well priced. And we do need to think about the fact that, overall, there does need to be that, you know that the insurer doesn’t, it is a business, you know, and it does need to make sure that it’s balancing out those claims and the premiums coming in. And with the simplified income protection, the really, really key thing is here is like, I say, if we can say no to all those health questions, brilliant, we can take it on, but we must be very, very aware there’s a pre existing condition exclusion, and so that is on a simplified income protection group, they’re not going to list things.

So I list things so like with a mainstream you’d probably get a case of them saying, right, we’re actually going to exclude claims for mental health, or we’re going to exclude claims for your right knee or your back and things like that. The simplified income protection group just simply says any pre existing condition you’ve had in the last three years until you are two years recovered, so they can potentially consider it after that two year time frame. Now that can sometimes be confusing for people as to how that works, so just be very, very clear you are classed as having a medical condition if you are still having symptoms, if you are still being medicated, if you are still getting treatments, if it is a chronic condition that is, you know, it’s just something that is there, it’s not going to go away. And also, as well, if you’re having any follow up appointments. So that is the especially, that one can be quite confusing, one to be really clear about with your clients, because, you know, it might be that they have a medical condition that they just need to see the GP every few years or so, and they might think, Oh, well, I’m going to be so much time frame since at this point. But even just having that follow up coming up does mean that they will be classed as an exclusion. So they’re the main thing.

So I’ve got a couple of examples to go through do like to bring my example. So I’ve got case study, and this person’s in their mid 30s, non smoker, and this is the one for the occupation class, which I think is really interesting to share. Now, really tricky to get them cover on the mainstream, because we had potentially three exclusions. There’s a knee injury and elbow injury and back pain. We were trying to potentially argue it through with mainstream because we do have with income protection the three strike rule. A lot with your mainstream providers, they are trying their best to kind of move away from it. But with mainstream income protection, the rule generally is, if you’ve got three exclusions on there, you’re not going to get the income protection policy with them. You do tend to find with your friendlies, and that they offer a lot more. There are a lot more friendlies than British friendly and shepherds friendly. I’ve just mentioned them specifically because of the fact they do the simplified income protection. But in terms of your friendlies, you do have Simon says to friendly, obviously I’ve mentioned national friendly as well, and you do have Holloway friendly. But this session is just about simplified income protection. So I’m just focusing on British friendly and shepherds friendly at the moment.

So with this person, I say we were, you know, it was going to take quite a bit. There was going to need to be, I think there was wanting to be GP reports. It wasn’t going to be a straight through process. It was taking quite a bit of time. So we’re really having to argue the case for him to be able to have this cover. So we did look at the simplified income protection option, which, instead of going through all the rigmarole the mainstream and where we were pretty much getting an indication it wasn’t going to happen, we could do this within 30 minutes. So. So we did have, obviously those conditions that would eventually, hopefully drop off in terms of the the sort of like exclusion, the pre existing condition exclusion. But this person also did heavy mechanical work on boating vessels, which meant that with mainstream insurance, his occupation class was really high. But with the simplified income protection route, his occupation class wasn’t really considered. So I’ll be able to say that in a second. So for this person, we did 3000 pounds per month income protection to age 68 it was a four week deferred period, and it was a two year claim maximum per claimable event. So that was a roughly 67 pound per month on a guaranteed age costed basis. Now the cheapest with the mainstream providers, if we were wanting to look at like getting a guaranteed premium, locking it in, was 168 pounds per month. So we’re almost, you know, between double triple the premium because of the occupation class being taken into account.

Now with the friendlies, I’m saying the simplified route because of the fact that this person did have those three kind of extra things sat there as well, where was sort of like having difficulty in terms of getting the cover in place. You could go through the fully underwritten route with, say, British friendly, shepherds friendly, and with the other friendlies, and again, the occupation class shouldn’t be considered. I’m just giving this example, though, just to give that, that clear indication of the difference that you would get between those two sets of pricing. And that can actually work quite well as well, especially like, again, with people who are he was heavy mechanical work on a boating vessel. You do tend to find that a lot of people who are doing offshore work aren’t planning on doing being offshore until they retire. And they often plan on doing it to a certain time and then stop at which point if they become more desk based and things like that. You can often review the cover, and obviously, if they’re still in UK, review the cover, and it actually will work out quite well price wise, considering that they don’t have that extra consideration for being offshore.

And then the next person, again, just to give an example. And this is one where, again, sort of thinking, we might be thinking, well, where on earth does somebody sit with this health wise, and considering I just gave a bit of some of the list of things that would be a case of, if you answered yes, it would be you couldn’t have this route. Well, with this person, the early forties is non smoker, and it had something known as aplastic anaemia, and that’s where the body stops producing new blood cells. It’s very, very serious condition. It can cause quite a lot of damage to the body long term. And this is something that I say this person had, and it also had the stem cell transplant over five years before the application was done, which meant that in the in the question set for health, the answer was, have you had any of these, or do any of these apply to you? The answer was no, and I think it was important to bring this as a potential for everybody to hear, because of the fact that I think most people had stem cell transplant, they’d probably think, oh, that’s that’s not your usual run of the day treatments. Or there’s just no way it’s going to be possible. And the answer is, well, yes, it is. And so for this person, it was 1800 pound per month of benefit, a 13 week deferred period, two year claim.

It was age costed, guaranteed, and the premium was about 24 pounds per month. So I’m hoping those are really good examples to show you how occupations, how health can really differ depending upon what we’re looking at in the market, how we might be looking at one option ourselves, and then there can sometimes just be specialist options out there as well. So really key things with the simplified is that, you know, we just need to, sort of like, get through those health questions. If we can say no, then we can probably do the cover. It is going to exclude pre existing conditions, but it has the potential to cover them after the initial two years. I say once they’re two years free of treatments and things like that. And again, it might not be lots and lots of situations where that would happen, but there are still quite a few situations where it would be. So thank you for listening, everybody. Next time Alan is going to be back with me, and we talk about high BMI and protection insurance. And I’m absolutely flabbergasted that I’ve got to season 10 of the podcast and not done a specific high BMI episode. It really confused me. I know we’ve discussed it as part of other conditions and different things and popping in, but we’ve not done that specifically, and it is one of the main ones that people tend to ask about when we are when we’re helping other advisors. And also, I’ve got through this without an interruption from the kids, which is perfect, fantastic. So do feel free to visit the website, practical, hyphen protection.co.uk, for more episodes, and also to collect your CPD certificate. Thanks to our sponsors, the ox members. Thank you, everybody. Bye. You.