Weighing up the benefits of income protection

The growing need for income protection insurance has also caused a marked increase in the number of products available to consumers. JOHN WILKINSON takes a look at some of the products and what they can offer.

The problem when advising a client of a risk product is they tend to have similar features that make it difficult to distinguish between each product. Yet it is the subtle differences that could seriously affect a client's financial status in the event they have to make a claim.

Income-protection insurance products pay the client a salary if they are off work for a condition covered by the policy, but there are a myriad of conditions that determine just when they can claim and what is allowed with a return to work.

Colonial personal risk technical manager Chris Kirby has spent some time examining these issues and has undertaken a strength, weakness, opportunity and threat (SWOT) analysis of a number of income-protection products, pointing out some of the major differences in products offered by life insurers. This is an edited version of his analysis and will touch on some of the major providers and products.

AMP Income Continuance - This product has a chronic conditions option that allows the client to continue to receive income protection if their ability to perform their usual occupation is significantly reduced. The average weekly hours of work must be reduced by 75 per cent, on doctor's advice, and continue for three consecutive months. The average weekly income must also be reduced by 75 per cent. This option is unique to AMP, according to Kirby.

AMP also offers the client the ability to work for five consecutive days or less without affecting the waiting period for payments. Kirby says this is the most flexible waiting period criteria in the industry.

A potential drawback of the product concerns a clause in the partial disability terms. The company pays income protection if the client works but earns less than before becoming ill. However, a condition of pay requires AMP to agree with any doctor's approval to work. Kirby says this condition is a concern.

American International Assurance - Kirby describes this product as "very good and hard to compete against". The reasons for this include such highlights as the client is able to claim total disability if they are unable to perform one of the important duties of their job, a waiting period of at least seven consecutive days and a crisis and scheduled injuries benefits payable for a guaranteed period in advance.

ACL Premium Plan Blue Ribbon - Kirby says although he finds a few issues with this product, it offers cover to industry standards. The main sticking point is if the client's total disability does not start until 30 days after the date of the injury ACL will classify the cause of the total disability as a sickness. As a result, Kirby feels there are concerns with ACL's definition of an injury in this clause.

The product also offers occupationally acquired HIV and Hepatitis B/C cover. However, according to Kirby, there have been no occupationally acquired HIV cases in the last six years because most people in this area of risk are taking adequate precautions.

AXA Comprehensive Income Protection Plan - This product has income protection clauses that are in line with industry standards.

Colonial Income Care Plus - The total disability clause in this product is highlighted by Kirby because it requires the client to define one income-producing activity of their job that constitutes 20 per cent or more of their income. Kirby is unsure if the 20 per cent ruling is viable.

Another area of difference in the Colonial product is the lack of interim accident benefit. This product is the only one in the industry not offering this clause.

Lumley Life Platinum Income Protection - This product's pre-disability income (PDI) is the most generous in the industry and that makes it a very good product for clients, according to Kirby. This is because the PDI basis uses the client's highest average monthly income for any 12 consecutive months in the five years before the risk commencement date or the five years before total disability.

The product also offers level premium rates; however, there are no offsets for professional occupations.

National Financial Management Income Protection Plus - This is another product that offers cover with conditions in line with industry standards.

Norwich Income Protection Gold - Another product offering cover in line with other standard industry products but also offers cover up to 70 years old for clients in AAA occupations.

Royal & Sun Alliance Secure Income Policy - This product has introduced a new clause in income protection polices. This is a criminal activity disclaimer. The policy will not pay benefits for a period the client is in jail or as result of sickness or injury resulting from criminal activity. The definition of a crime is one that would attract a jail sentence regardless of the outcome of a court case.

MLC Income Protection Standard - This product has some exclusions that will save the life industry a considerable sum in benefits, Kirby says.

The exclusions are chronic fatigue syndrome, mental disorders and alcohol, drug and chemical abuse or dependency. However these exclusions do not apply to a client kept indoors or receiving full-time nursing care under a qualified doctor.

Kirby believes all life companies will gradually introduce these types of exclusions to their products as the move has enabled MLC to offer low premium rates for clients.

Mercantile Mutual Income Cover - This is a standard income-protection product with clauses that are in line with the industry standards.

Tower Income Security Classic - A standard product with only slight differences between other products, although, these variations can impact on certain clients.

Tower Life Loss of Income - Kirby has raised only one concern about this product, the pre-disability income ruling. Under the policy, Tower will only pay a percentage of the average monthly income during the most recent 12-month period if the client employment status was inactive during the preceding 12 months before injury or illness.

Zurich Income Replacement Plus - This product has an unique option, a family care benefit. The benefit is payable if the client dies before they are 65 and receiving income protection. The policy will pay the spouse income benefit for up to five years after death, but not beyond the benefit expiry date shown in the schedule.