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Ask the Expert: Income protection rate hikes

by: Geoff Hall, managing director, Berkeley Alexander
  • 01/12/2015
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Ask the Expert: Income protection rate hikes
Geoff Hall of Berkeley Alexander answers your question on the possibility of helping a client switch provider if their ASU premiums rise substantially.

Question: Some Accident, Sickness and Unemployment (ASU) providers have increased their premiums – some by as much as 50%. Can my clients move to another provider?

Answer: Premium increases on ASU policies are strictly controlled as a result of rules set by the Competition Commission. Rates on existing policies can only be increased when justified, the most important justification being due to claims costs increasing.

Some providers have been popular in the past thanks to their higher than average benefit levels that didn’t require any of the cover to be associated with a mortgage.

Most of the rest of the market have policies that provide benefit levels that are linked to mortgage payments and are limited depending on whether it is for mortgage or non-mortgage related cover (typically £1,500 mortgage protection or £1,000 non-mortgage). While this type of cover might provide unique benefits, for some, the recent premium hikes could simply make those policies unaffordable.

It is possible to requote the risk and to set up a new policy with the same level of total benefit for a cheaper premium, but it may need a combination approach, potentially splitting the benefit over two policies. For instance, a client who previously had a £2,500 income protection (IP) policy may need to split cover across an Mortgage Payment Protection Insurance (MPPI) and a separate IP policy to deliver the same total benefit.

If the client has a mortgage of say £1,250 per month, there are a number of providers, including Berkeley Alexander, that could provide an MPPI policy for £1,500 (£1,250 on the mortgage and additional associated costs), plus a second and separate income protection product with a maximum £1,000 benefit, so providing the full £2,500 but over two policies.

The adviser would need to do a fresh review with the client of course, to consider their needs and current circumstances, but this offers a positive opportunity to get back in front of a client to build on a relationship.

There is one note of caution with regard to the initial exclusion period. All new ASU policies carry this to prevent someone buying a policy in the expectation that they are about to be made unemployed. However, all good policies will carry a waiver of this exclusion period if the client is transferring from one insurer to another. For this waiver to be effective, the client will normally need to have held the previous policy for at least six months with no claims and cover must be on “no worse terms” – so for instance someone cannot get more cover under the new policy than the previous one.

So don’t stand for rate hikes – shop around. Treat ASU the same as you would any other financial or insurance product – if the price goes up, review what else is available to give better value for money. Coming up with a suitable alternative that will save the client money is bound to be well received. With the right approach a switch could be just the tonic.

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