Insurers and advisers need to be clearer on the limits of income protection (IP) in covering customers when they fall out of work due to stress.
This is according to Alan Knowles, co-managing director at Cura Financial Services and board member of the Protection Distributors Group (PDG) (pictured).
On Tuesday, the group published a guide aimed at helping financial advisers understand potential issues surrounding IP claims related to stress and mental health.
Knowles, who led on this guide, told Health & Protection that failure to be clear on the limits of IP, particularly where insurers fail to pay out in cases related to bereavement, risks damaging customer’s perception of this most important benefit.
“We’ve heard now about a few examples of policies that haven’t paid out for income protection where somebody has been off work due to work related stress or due to a bereavement,” Knowles explained.
“It’s not to say that this is the case with every insurer, but it’s that idea of where it’s not you that’s poorly as such.
“You’ve lost a family member. It may not be a bereavement. It may be a sick child or something like that.
“So it’s not the individual that’s sick who is trying to claim on the policy.
“It’s not to say that an insurer wouldn’t pay out for that, but there have been instances where they haven’t done. We’ve seen different advisers shout about this thing and say, ‘My client can’t work. They’re stressed. They’re worried. They’re low. They’re down and everything like that.”
Further research into the issue
Knowles revealed that these cases led the PDG to carry out further research into the issue.
“It was a really big piece of work,” Knowles continued. “We’ve been out to insurers. We’ve spoken to them. We’ve spoken to other advisers. A lot of advisers are led to believe that income protection policies pay if you’re poorly, if you can’t work, you’re sick.
“The big thing for everybody to understand is having a sick note from work doesn’t mean you’re going to get an IP claim. I like to think most advisers don’t think that’s the case anyway. But some do.
“A lot of people think if you’re signed off from work, you will get your IP out, but it’s not that simple.
“What insurers are saying is every case is dealt with case-by-case. A doctor could just write a sick note willy nilly.
“You’re signed off work and don’t need any proof that you’re sick or poorly. But an insurer’s got to use their own judgement. They’ve got to explore and look into a little bit more.”
Perception IP always pays out
Knowles added that there is a perception among some in the industry, and customers alike, that IP always pays out for stress.
“But that’s not strictly true,” he continued. “We need to explain that to customers a little bit more.
“So now for example, we’ve adopted the idea to say, ‘yes this policy should pay out due to a mental health condition, but just be aware that if it’s stress or a dispute at work or a bereavement, it doesn’t mean it’s automatically going to pay out. It means the insurer is going to look at the individual circumstances.
“We just want to be clear with our clients and want all advisers to do the same.”
Damaging the perception of IP
The consequences for the industry of not being clear on the limits of IP in these instances is that it damages the perception of the benefit among customers.
“Imagine it doesn’t pay out because of a bereavement,” Knowles added. “You’ve lost a child and the big nasty insurer won’t pay out. I’ve lost my son or my daughter and I couldn’t work for six months and the insurer says that it wasn’t me that was poorly. That’s a horrible story to go out with. That’s just awful.
“I’m not saying insurers wouldn’t pay out for that. I’ve seen instances where they have, but I’ve also heard of instances where they’ve not as well.
“Us as advisers are the ones speaking to clients and explaining the potential gap or pitfall or risk. We need to make sure that they know and are aware of something like that.”
Message to insurers
But this message is equally important for insurers, Knowles added.
“Stage one is educating advisers, but we have an ask of insurers as well because it’s not just on us,” Knowles continued.
“Our big thing for insurers is please, please make sure that your staff are delivering the same message when they’re going out and talking to new advisers about income protection.”