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Royal London makes raft of income protection improvements

  • 04/06/2024
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Royal London makes raft of income protection improvements
Mutual insurer Royal London has made a number of updates to its income protection proposition, including a minimum income guarantee,

Royal London said the income protection improvements would “strength[en] and expand the flexibility” of the product by making it easier to claim, and have features for the self-employed and payout limits across the board to “reflect today’s higher living costs”.

The lender has introduced an income replacement guarantee that allows customers to claim up to £1,750 every month, going up to £3,500 for doctors and surgeons.

Self-employed people will only need to provide documentation for fixed costs, such as lease agreements, office rental payments or phone contracts, for 12 months, rather than three years. The lender said that this will help those who have recently made the move to become self-employed.

The firm has also increased replacement ratios so claimants can receive a payout with a higher percentage of their salary. Policies will pay 65% of the first £60,000 of the customer’s salary, plus 50% of the remaining amount up to £250,000 as a monthly benefit when the policyholder is too ill to work.

The lender explained that this means someone earning £60,000 can receive up to £3,250 per month, an increase from £2,875 previously.

Jennifer Gilchrist, protection specialist at Royal London, said: “The pandemic, followed swiftly by the cost-of-living crisis, has impacted almost everyone’s everyday finances. It has focused people’s minds on the need for longer-term financial resilience and protecting themselves and their loved ones should hard times hit.

“In doing so, it’s been a catalyst for people seeing the importance of protecting their income and, as a result, income protection sales have seen double-digit growth. This could be income protection’s coming-of-age moment.”

She added: “Looking at the market, there’s a completely under-served group with a huge income protection gap – the self-employed. The latest figures show over one in 10 workers, or 4.25 million workers, in the UK are self-employed, yet only a tiny fraction are protecting their income.

“That’s why it’s so important that we as an industry continue to work together to promote the benefits of income protection, and why we’ve strengthened our proposition to help broaden the appeal of a solution that has flown under the radar for too long.

“We hope that as well as creating a greater awareness, making propositional changes that better serve this group can help address the gap.”

Royal London paid around £6.5m in income protection claims in 2023, with the most common reasons being musculoskeletal at 54%, cancer at 10% and mental health conditions at 4%.


Royal London changes will ‘make a real difference’ for income protection

Charlotte Rogers, protection specialist at Radcliffe & Co Independent Financial Advisers, said that it was encouraging to see that Royal London had “listened to market feedback, addressing key issues and introducing changes that will make a real difference”.

She said: “A minimum benefit guarantee of £1,500 (or £3,000 for doctors and surgeons) has been the limit for many years with most insurers, and the increase is definitely more reflective of the typical amount needed to maintain essential expenditure.

“Similarly, a much higher percentage of an average person’s income is required now in order to cover essentials, so increasing the sum-assured limits will enable more families to stay financially resilient, with spending more likely to be covered in full.”

Rogers said that the self-employed can be “financially vulnerable”, so making it easier for this group to cover fixed costs when running their business means they can support themselves with an income that is more reflective of take-home pay prior to making a claim.

She added that, often, contractors take time off between projects, so allowing a grace period gives clients confidence that they can do so, and their long-term income will be protected.

“I applaud Royal London for making changes that will add value to a client’s policy and enable more claims to be paid. With income protection sales increasing as consumers are becoming more and more reliant on their incomes, with ‘emergency savings’ depleting, we need policies that remain fit for purpose and relevant to current needs,” Rogers concluded.

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