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June 2021 National Friendly: IP

National Friendly has launched a budget long term income protection plan that only pays out if the customer is unable to work due to an accident. Key features include:

The main benefit can be set between £500 and £6,000 a month, up to a maximum of 70% of earnings. To claim, the customer must be medically certified as unable to carry out the main duties of their occupation. They also need to be receiving medical care during their claim and not be working in any other occupation.

Customers must usually be working at least 16 hours a week (but see below).
Benefit is paid out for a maximum period of one or two years only.
A benefit guarantee option means the customer can protect up to £3,000 a month of their main benefit by submitting proof of earnings within three months of the policy starting.
Hazardous pursuits cover. The customer can pay extra to cover an enhanced list of hazardous pursuits. Here, cover is between £500 and £2,000 a month, or the selected amount of main benefit if lower.
Back to work benefit. This policy provides a proportionate benefit if the customer returns to work on lower earnings than before.
Accidental death benefit. Under this extra cost option, if the customer dies as a result of an accident within 30 days of that accident, National Friendly will pay a lump sum equating to one or two years' main benefit, whichever is chosen upfront.
Pre-existing conditions are excluded if they are made worse by an accident, and lead to not being able to work. Otherwise exclusions are fairly standard, but also include injuries if working outside the UK for more than 14 days (and 30 days in total in any year) and accidents in countries where the FCDO advises against any travel or non-essential travel.

Other benefits include:

A contingency benefit that provides a maximum of £500 a month for up to 12 months if working less than 16 hours a week and due to an accident the customer is unable to carry out their normal daily duties or suffers a brain injury.

An option for increased cover each year, in line with the RPI (if between 0% and +5% a year), to take account of inflation and increases in earnings. Premiums will increase to reflect the higher cover.
A choice of when the benefit starts after injury – 30, 60, 90 or 180 days.
A flexible policy end date – to age 60, 65, 70 or the State retirement age when the plan starts (so it’s fixed).
Waiver of premium benefit. Premiums are waived while benefit is being paid.
An option to change cover for certain benefits at a later date to match changing needs.

Comment: The main reason to take out IP is to receive a regular income if you are unable to work because of illness or disability after a pre-set period. Generally, the view is it doesn’t matter what has caused you to not be able to work and therefore you should choose insurance that covers the widest range of causes. Conventional IP achieves that pretty well.

Whilst IP covers illness AND disability, it’s illness that results in by far the most claims. So, taking L&G as an example (it publishes a good range of claims stats and has a big IP book), in 2020 on its new and continuing IP claims, 32% had a musculoskeletal cause, 17% cancer and 12% mental health. In total, that’s over 60% of its IP claims being illness-related. Similarly, Aviva reported of its new claims in 2020, musculoskeletal accounted for 29.5% of its IP claims, mental health for 23.8% and cancer for 8.7%, again making up over 60%.

In the friendlies sector, Holloway reports  its top cause of claims was accident and injury (26% of claims) which is typical for providers offering shorter deferred periods and selling more to blue rather than white collar workers (if such descriptors are still used!).

In other words, an accident only IP provides MUCH less cover than a regular IP plan. The problem is, when people think ‘being off work’ they often think accidents will be the main cause when in reality illness will be. As COVID-19 is already illustrating, going forward, many more claims may be mental health related too. Moreover, the long-term effects of both long-Covid and the shock of the world’s worst pandemic for at least 100 years, are yet to be properly understood or felt too.

So, in terms of fundamentals, this is NOT a cheaper way to buy IP. Indeed, we are uncomfortable with it being called ‘IP’ (as we are with ASU type plans marketed as IP too).

If this plan has a place, it is only for situations where conventional IP cover is not available or, for some reason, a customer needs more accident-related cover rather than illness-related cover. Optional hazardous pursuits cover may be valuable too if that is not covered under a conventional IP policy.

The equation is even more in conventional IP’s favour, as the number of people accessing rehabilitation ,early intervention and other added value benefits during the deferred or claim period (or even with no claim likely) is expanding fast and most IP plans include a range of such services and the trend is to increase those still further.

The maximum benefits of this plan are limited too, both in financial terms and as regards the maximum benefit period.

In short, great care needs to be taken if recommending this plan. It has a place but, for most clients, conventional IP will provide significantly wider cover.

Plus points: An alternative to lump sum accident insurance; Some good elements from IP; Optional hazardous pursuits cover.

Not so plus points: Would not pay out on the majority of IP claims, as they are due to illness; Maximum benefit period two years; Not an alternative to conventional IP; Wider exclusions than under many IP plans; Some geographic limitations; Limited maximum benefits; Some occupation exclusions; No third party or added value benefits listed.

Website: https://nationalfriendly.co.uk/accident-only-income-protection/.

Rating (max 10): Overall: 5. Bronze

Tags: IP; National Friendly

I Mark: No

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