Legal & General Low Start Income Protection (Adviser score 7.0)

November 2020 Legal & General: IP


Legal & General has launched two new income protection (IP) plans, aimed at SMEs and at those looking for a lower cost entry to IP.

Both versions of the insurer’s long-established regular income protection (IP) plan include many of the benefits of that plan.

The key difference for Low Start Income Protection is that premiums start at a lower premium, which then increases annually, although there is no change to the cover itself during the term. L&G says the plan has been launched to give advisers and customers more choice and also targets those who may not be able to afford conventional level premium IP.

As with the full cost plan, this plan is also available on an increasing cover basis. Short payment periods (one or two years) are also available to help reduce cost. A stepped benefit is available, whereby the benefit starts at one level then increases after a second deferred period – to best reflect the customer’s employer’s sick pay scheme. Plans also include rehabilitation and nurse support services.

Unlike the full cost plan, no life cover is included. Maximum cover is £10K a month, or £7K a month on the increasing cover version. Plans must end by age 70 and oldest age at entry is 59.

L&G has also launched Executive Income Protection as an affordable and flexible option for small to medium sized enterprises (SMEs). This plan is designed to provide cover for SME owners and individual employees on higher salaries and allows firms to pay a monthly benefit to an employee if they become unable to work due to illness or injury.

Employers can insure up to 80% of an individual employee's earnings, plus dividends and P11D benefits, and additional cover can be arranged for other costs such as pension and National Insurance contributions (NICs). Maximum benefit is £25K a month or £17.5K on the increasing version.

The two new products join Legal & General's two existing IP products: income protection benefit and the newish rental income protection benefit, and form part of what the insurer says is now a comprehensive IP proposition, offering a range of benefits including nurse support and back-to-work rehabilitation.

Comment: Last year L&G launched an IP plan aimed at the rental market and this year has gone a stage further by adding two more IP plans.

The Executive Income Plan is aimed at SMEs and high earners and offers high maximum benefits plus the usual L&G benefits.

Our review though focuses on the second new plan, Low Start Income Protection. A constant criticism of IP is that it is ‘too expensive’ and, while the numbers don’t really support that objection, nevertheless a lower cost version will help those for whom affordability is an issue. It offers most of the benefits of the full cost plan but drops the more usual level premium model, replacing it with the risk premium based system used by some friendly societies.

The big advantage of that approach is twofold. First it means a lower premium today – especially valuable for those whose career earnings can expect to go up in future. Second, most plans never get to their end date and the level premium system means effectively overcharging those who do let their policy lapse.

Low start does though mean there may come a time where the next annual premium increase may be unaffordable. However, as customers are used to most of their insurance premiums rising (car, household etc.) this is less of a problem than might be expected and really only applies at older ages.

Perhaps the most significant element of these two launches though is the fact they have happened at all. For a major player like L&G to launch three new IP options within little more than a year is a solid vote for the view that IP is at last stepping up to be seen as much more than just the ‘other’ long term protection product.

Our rating applies to the low cost plan.

Plus points: Two new IP plans from a top insurer; Low cost version allows advisers to offer full cost or low cost options; Includes most of the benefits of the full cost version; New SME executive IP plan launched too.

Not so plus points: Low cost today means higher costs tomorrow and eventually the premium will be higher than for the full cost version; For some the premium may become affordable at older ages; Some benefit limitations.


Rating (max 10): Overall: 8. Gold

Tags: IP; L&G

I Mark: No

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