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Too often, individuals take out an Income Protection policy without being fully aware of the incapacity definition on which the plan would pay out. Will the plan pay out if I am too sick to do my current job role? Or will it only pay out if I am unable to do any occupation?
For a policy which is designed to protect you throughout your working life it is so important to ensure you have a policy which will actually payout should you be unable to work due to illness or injury.
Taking out an income protection policy that includes the ‘own occupation’ definition of incapacity means that your plan would payout should you suffer sickness or injury that prevents you working in your own occupation. We usually strongly recommend this incapacity definition.
For example, you could have a high pressured job that leads to high stress levels and means that you can no longer fulfil the duties of your occupation.
In this case the policy would payout (as stress is a valid reason to claim) and therefore the insurer would not require you take a less stressful position. Naturally, this definition of incapacity provides the greatest level of income protection cover.
An income protection plan using the ‘suited occupation’ definition of incapacity provides a lesser degree of cover than a policy with the ‘own occupation’ definition.
Under this definition the insurer may require you to return to work in a an occupation for which you are suited.
The insurer will determine what is a suited occupation based on your skills, training, qualifications and experience.
For example, you might be a qualified accountant working as the financial director of a large or rapidly growing company but due to stress you can no longer fulfil the duties of your position.
Where an own occupation income protection policy would likely cover you the insurer may require you to take a less stressful accounting position at the same firm or elsewhere with a suited occupation policy.
A policy with work tasks or activities of daily living definition of incapacity provides the lowest level earnings protection. Under this definition the income protection policy would payout based on the ability of the policyholder to complete certain tasks.
For example, common tasks include walking, bending, lifting, climbing and seeing. It is usually the case that the policy would payout if three or more of these tasks cannot be completed without further risk to health.
We do not usually recommend this type of policy unless the client is not eligible for a policy under other occupation definitions.
What’s “best” for you will depend entirely upon your unique circumstances. Although we usually recommend that all our clients take out Income Protection with an “own occupation” incapacity definition (as it is the most comprehensive and clear-cut form of cover) this might not always be possible as some very risky occupations cannot qualify for this definition.
It’s vitally important to read the terms and conditions of your policy to ensure you have own occupation cover rather than suited or work tasks cover. This slight detail could be the difference between a successful claim and real financial hardship.
For the vast majority of office based workers gaining own occupation cover is possible, irrespective of the insurer. However, for very manual or risky occupations most insurers will not offer the own occupation definition of incapacity.
There are, however, a limited number of insurers who offer own occupation cover as standard to all but the very riskiest occupations.
Thus, with some insurers it is possible for the vast majority of workers to obtain this cover, unless the occupation is excluded from cover completely, such as for professional sports persons and soldiers.
It is usually advisable to take out a policy using the own occupation definition of incapacity as this definition provides the highest level of earnings protection and reduces the chances that the insurer may decline a claim.
In other words, you know exactly where you stand with an own occupation definition for income protection.
However, it may not always be possible to take out a policy with this definition as some occupations are not eligible for this type of cover. For example, there are some manual work occupations are excluded from this definition with a number of insurers, especially if you work at heights.
In this case an any occupation or even a work tasks definition may be applied (an insurance broker will be able to tell you the definition applied when you receive your income protection quotes).
Sometimes for these types of jobs a work tasks definition may still provide value as the highest risk to this class of work is likely to be of a very physical or risky nature.
For example, a fall that injures the back could quite easily mean that policyholder is unable to safely walk, lift or bend, and would therefore be covered by the plan.
Buying Income Protection can be a minefield and the occupation definition tends to be one of the main pitfalls. We are here to make sure you have all the information so you can set-up the most suitable financial protection.
If you need help please do not hesitate to call us on 02084327333 or email help@drewberry.co.uk for fee-free advice.
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