The coronavirus (COVID-19) pandemic has paralysed the nation’s economy. Many workers have been furloughed on reduced pay or even let go entirely. Meanwhile, the self-employed have often seen their income slow to a trickle or stop altogether.
It’s a difficult period for all of us right now, with the financial fallout from coronavirus likely to be felt for some time to come.
The first thing we generally consider doing when the going gets tough financially is tighten our belts. This might mean cutting back on expenditure we don’t feel is essential. Yet how to determine what is and isn’t essential expenditure?
One of the first questions you might ask, especially if you’re not working, on a heavily reduced salary or your income has dropped off a cliff is whether you still need cover such as Income Protection.
However, the answer is a lot more nuanced than you may think. Cancelling your Income Protection policy will not only obviously leave you uncovered should you fall ill, but it could make it more difficult for you to get cover again in the future.
If you’ve suffered from any medical conditions since the policy went live, or even had to make a claim, then these issues are unlikely to be covered going forward on a new policy.
Even if you could get them covered after cancelling and restarting the policy, it’s likely that there’d be a premium increase. This is due to the rise in risk and the fact that you’re older today when you first took the policy out.
So, if possible, we don’t tend to recommend cancelling valuable insurance policies as a first port of call as there’s no guarantee you’ll be able to arrange cover on like-for-like terms in the future when you’re back in work.
Fortunately, many insurers have recognised the difficulties plenty of clients have found themselves in. They are acting to introduce a variety of solutions, such as career breaks, premium holidays and premium reduction facilities.
These can ‘suspend’ your policy and premiums for a period or otherwise look to cut premiums and your cover until you’re back working at full capacity again.
Crucially, because you didn’t cancel the policy, the insurer will still honour your medical history as it was when you first took the policy out.
Career Breaks, Payment Holidays, Premium Reductions and More…
AIG policyholders across Income Protection, Life Insurance and Critical Illness Cover have the option for a premium reduction. You can apply to reduce your premium (and therefore your level of cover) for a 6 month period.
At the end of 6 months, your premiums and level of cover will automatically return to previous levels prior to this change being made. There’ll be no need for underwriting or the completion of any medical questions.
You must have taken out your policy prior to January 1st, 2020 and be able to answer yes to at least one of the following questions:
Aviva have introduced a premium deferral option that allows you to defer premiums for 3 months and spread the repayments out over the 9 months following the premium deferral.
There will be no changes to any policy benefits if you opt for the premium deferral, which means your cover will remain in place.
You can apply at any time up until August 18th 2020.
Premium deferrals are available for policyholders whose policies began before 1st April 2020. These policyholders must have made at least one payment and they must:
Existing British Friendly policyholders have the option to take a ‘career break’ if out of work or facing a severely reduced income due to coronavirus.
This allows you to pause premium collections for a specified period of time.
Note that if you opt for a career break, you are not protected should you fall ill during the period you don’t pay premiums.
The career break must be for a minimum of 1 month and is available for a maximum of 24 months. It cannot be shortened once you implement it.
It can, however, be extended once commenced with at least 5 days’ notice before the premium would be due again after your initial period on career break.
For existing Cirencester Friendly My Earnings Protected policyholders, you have the option to take a premium holiday of up to 4 months.
During this period you will not be entitled to any sick pay benefits and must continue to pay 1/12th of your monthly premium.
Eligibility is based on you, the policyholder, being unable to lawfully carry out the material and substantial duties of your job. This includes being unable to work due to the lockdown or other coronavirus-related issues.
Existing Holloway Friendly policyholders have the option to take a career break from their policy for a minimum period of 3 months.
Note that if you opt for the career break option you are not protected during this period.
The career break will take effect from the 1st of month after you made the request.
Your policy must have been in place for at least 3 months before you apply for a career break and you must apply between now and July 15th 2020 to be eligible.
The minimum period you can take a career break for is 3 months. However, if you choose a longer period than this the career break can be shortened at your request.
For existing policyholders with Liverpool Victoria, you have the option to take a payment holiday for up to 3 months. Here, LV pauses premiums entirely during this period.
Crucially, Liverpool Victoria allows the policy to remain in force and lets you claim during this payment holiday.
Your policy must have been in force for at least a year to make use of the payment holiday. To qualify you must have suffered a considerable drop in income or not be earning as a result of coronavirus.
It’s therefore not available to those furloughed on 80% of salary.
Your premiums must be up to date for you to be eligible.
Unemployment Premium Holiday
Pay no premiums for up to 6 months if you become unemployed through no fault of your own. Throughout this period, your cover remains in place in full.
You must have an Income Protection policy with LV taken out since 1st January 2017 to be eligible for this assistance.
Flexible Cover Options
Under this you have two options:
Existing Shepherds Friendly policyholders have the option to take a career break of between a minimum of 3 months and a maximum of 24 months.
Note that if you take a career break, you won’t be covered during this period.
Once the premium break has commenced, it can only be shortened with Shepherds Friendly’s agreement.
You must have paid at least one monthly premium to be eligible to apply for a career break.
You can apply to extend your career break by providing Shepherds Friendly with 2 weeks’ notice prior to the end of the initial career break period.
For existing policyholder with The Exeter, you have access to a premium reduction option.
This allows you to reduce your premiums (and therefore your level of cover) for a set period if you’re struggling financially due to coronavirus.
For existing policyholder with Unum, you have access to a career break option.
This allows you to suspend your premiums (and therefore your cover) for up to 12 months.
Existing Vitality policyholders have access to a premium reduction option.
You can opt to reduce your premiums by 25%, 50% or 75%. Note that reducing your premiums will also reduce your cover by the same percentage.
The premium reduction will be effective for 3 months.
Premium / Benefit Reduction
Existing Zurich Income Protection clients have the option to reduce your benefit to a minimum £250 a month, or the premium to a £5 minimum (benefit drops accordingly).
For Zurich Life Insurance clients, you can opt to decrease your sum assured for 6 months (and therefore see a premium reduction accordingly). You can then increase the sum assured back to the original level without any need for additional underwriting.
For the Income Protection, if your policy was purchased on or before March 31st 2020, Zurich is waiving the requirement that the policy must be in force for at least 12 months before this is activated.
For Life Insurance clients, this is only available to those who took out a Zurich Life Protection Platform policy. To be eligible, your Life Insurance policy number must start with PR.
Premium Deferral Option
Zurich has introduced a new option which allows protection customers to defer premium payments for up to 3 months, without any reduction in cover, if you’re in financial difficulty.
Once the deferral period has ended, you can choose whether you’d like to pay the outstanding premiums in one go or repay them over a period of a few months.
Customers with policies taken out before September 2018 will have up to the end of 2020 to repay the premiums. Customers on the Life Protection Platform (policy numbers with the prefix PR) will need to repay the outstanding amount in 2 months.
If there are any other Income Protection or Life Insurance providers offering career breaks / premium holidays etc. that we have missed out, please email us at email@example.com and we will add to this table.
We have done our best to compile this as accurately as possible. However, there may be some legacy policies which DO NOT permit the premium holidays, career breaks or premium reductions listed. If you’re unsure, the best thing to do is contact your adviser for more information.
Note that in most cases, your level of cover will be reduced or even halted by taking advantage of these options. This could leave you with no cover / less cover than you need, which may be unsuitable for your requirements. We strongly recommend discussing your options with your adviser before opting for any of these options to ensure it’s right for you.
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