Aviva Living Costs Protection
Aviva has launched Living Costs Protection as a simplified income protection plan to help customers cover their monthly outgoings - such as mortgage or rent and bills - if they cannot work due to illness or injury.
The long term income protection contract (so premiums are not subject to IPT) features:
Customers initially choose a fixed benefit of between £500 and £1,500 a month.
The maximum claim payment period is 12 months per claim.
Deferred periods of 4, 8, 13 and 26 weeks are available.
Waiver of premium, with a 13 week deferred period.
Back to work benefit is included alongside maternity, parental or adoption leave cover.
Policy terms from five years to 52 years (depending on age).
No limit to how many claims can be made.
If a claim is made, there is no financial assessment, and no deductions (e.g. for State benefits) are applied.
Depending on underwriting, the plan also includes a Life Change Benefit. This is a guaranteed insurability option that can be used if the customer’s mortgage (if they move home) or rent increases. This must be at least six months after the policy starts and not within its last five years or when the customer is over 54.
Aviva also makes two optional benefits available:
Fracture Cover. This pays a cash lump sum on a tiered basis depending on what bone is broken or dislocated or ligament torn or tendon ruptured.
Global Treatment. This pays up to £1m if the customer or their child needs medical treatment outside the UK for a serious illness. The treatment must be recommended by Best Doctors and only applies in the first three years of the policy’s life, after which it is renewable up to age 71. The maximum lifetime benefit is £2m.
Aviva says Living Costs Protection can offer an alternative solution to customers with fluctuating incomes such as the self-employed and contractors, where the income-based benefit calculation required for traditional income protection at both point of sale and claim can be complex. The plan can also provide a more affordable option for those in higher risk occupations.
Recent research from Aviva shows that nearly half (45%) of UK families with dependent children could only survive financially for a month or less before their savings would run out. It also found that nearly one in four families (24%) had no savings at all to fall back on and that each year, a million people in the UK suffer a prolonged absence from work due to sickness, which can result in financial hardship. Despite these risks only 8% (1 in 12) UK families held any form of income protection.
Comment: IP has started to rebuild in recent years (thanks in no small part to initiatives such as 7 Families) but it’s still perceived by many potential customers (and by some advisers too) as complex, opaque and expensive.
Aviva has looked to tackle at least some of the issues with this plan. It’s simple to buy and understand, and there is no ‘second underwriting’ when a claim is made (with conventional IP, you are usually effectively financially underwritten again when you claim).
Maximum cover is relatively low, there are few choices to worry about and, because the insurer’s maximum exposure per policy is limited, underwriting can be much lighter too. It’s a good ‘starter’ package and will be suitable for many people who have found IP off-putting in the past. So, it’s not for everyone, but it’s a good plan – at least for some.
Plus points: Simple IP cover to help expand the IP market; Optional Fracture Cover; Optional Global Treatment cover; Less chance of being rated, as the maximum risk to the insurer is lower; In some ways cover is similar to ASU style plans but this is a ‘permanent’ product and there is no IPT on premiums.
Not so plus points: Benefits are limited, so won’t suit all clients; Pays out for up to 12 months only; Add-ons increase the price.
Website: http://www.aviva.co.uk
Rating (max 10): Innovation: 8. Overall: 7.5. Silver
Tags: IP; Aviva