Income protection insurance

What we look at

• Categories of disability according to policy terms

  When we consider a case, we sometimes have to reach a conclusion about the customer's level of disability (sometimes called ‘incapacity’). We’ll assess the level of benefit they’re entitled to receive. We’ll look at the policy terms and whether the customer is able to perform:

  • their ‘own occupation’
  • ‘any suited occupation’
  • ‘any occupation whatsoever’
  • neither their ‘own’, ‘any suited’ or ‘any’ occupation, because they’re considered to have ‘total disability’

  The customer’s ‘own occupation’

  ‘Own occupation’ is the role the customer had just before they became disabled.

  When assessing a customer's inability to do their job, you’ll usually need to consider the generic duties of that occupation, not the specific role.

  For example, a customer may be totally unable to perform the duties required of their specific job role as an accountant at a certain firm. But they may be able to perform some of the essential duties of the general role of ‘accountant’.

  The customer's previous job might have involved long hours, extensive travelling and significant stress. But these things may not be an integral part of the generic occupation itself. This means they may not exist in a different working environment or with a different employer.

  Some group policies are phrased in a job-specific way. This means that the benefit is payable if the customer is unable to carry out a specific job for a specific employer. So a customer could have a valid claim if their health means they can no longer work in their particular role for their particular employer.

  Some policies will cover the customer for their ‘own occupation’ for a period of time, usually 12 or 24 months. Then they’ll change to cover a different category of disability. When someone complains to us, we’ll carefully review the terms of the policy.

  ‘Any suited occupation’

  This refers to other job roles the customer might be able to do. You’ll need to use careful judgement when deciding what occupation a customer is suited to.

  We’ll consider whether your suggestions of suitable occupations are fair and reasonable based on factors such as the customer's:

  • professional qualifications
  • skills
  • previous work experience

  ‘Any occupation whatsoever’

  The terms of an income protection policy may state that the customer will only get benefits if they’re unable to carry out any occupation at all.

  A strict interpretation of this could lead to an unfair outcome. So we’ll carefully consider the circumstances of each individual case to decide whether the you’ve acted reasonably.

  We’ll check that this term was clearly explained to the customer when the policy was sold. We’ll do this by considering:

  • the policy documentation
  • key features documents
  • the insurance product information document
  • personal illustrations
  • any endorsement signed by the customer

  When we’re satisfied that the customer was made aware of the limited level of cover and the definition uses the phrase ‘any occupation whatsoever’, we’ll consider the customer's ability to perform any occupation.

  We’ll interpret ‘any’ in a reasonable way based on the facts of the case.

  We’re unlikely to decide that benefit should only be paid when the customer is completely unable to carry out any occupation whatsoever unless:

  • the policy states the limits of the cover very clearly
  • the limits were fully explained to the customer at the point of sale

  ‘Total disability’

  Some policy terms specify that the customer must experience ‘total disability’ to get paid benefit. However, we generally say that a strict interpretation of this is unfairly restrictive and a reasonable interpretation should be applied.

  We’ll look at whether the customer is totally unable to perform the essential or material and substantial duties – rather than all duties – of their ‘own’, ‘suited’, or ‘any’ occupation.

  For new claims, the customer needs to demonstrate that they are ‘totally disabled’ based on the policy's definition of disability. For terminating an existing claim, it’s up to the insurer to show that the customer is no longer totally disabled.

  The Court of Appeal case of Sargent v GRE (UK) Ltd found that the phrase ‘any occupation’ was ambiguous and that it should be interpreted in favour of the customer, rather than the insurer. This judgment broadly corresponds with our approach to these cases.

• ‘Proportionate’ and ‘rehabilitation’ clauses

  Policies with an ‘own occupation’ provision often have clauses the offer the customer reduced benefit when they:

  • return to work after a period of ‘total disability’
  • can show that their earnings have reduced

  Proportionate benefit usually applies to customers who take up a new, lower-paid occupation. Rehabilitation benefit applies to customers who return to their own occupation but in a reduced capacity.

  These benefits are sometimes limited to a period of one or two years.

  If a customer complains to us about how you’ve calculated the benefit, we’ll consider the policy wording.

  A customer isn’t usually entitled to receive either proportionate or rehabilitation benefit unless they’ve been disabled for a period longer than the deferred period. There may be cases where someone’s ability to carry out their occupation is clearly limited by their disability but they’ve attempted to continue working as best they can. In these cases, insurers sometimes agree to pay the partial benefit even though the customer was never ‘totally disabled’.

  This is considered good practice - otherwise, a hard-working customer could be treated unfairly.

  If a customer doesn’t return to work when you think they’re able to do so, in a different role or reduced capacity, then the policy will generally not pay out proportionate or rehabilitation benefit.

  However, in some cases, this would be an unreasonable outcome. For example, if a customer's business failed, they couldn’t work part-time in their own occupation and their disability might prevent them working in a similar occupation. In these circumstances, we might decide it is reasonable for you to pay part of the benefit.

• ‘Activities of daily living’

  For a claim to be paid, the customer will need to show that they’re unable to perform a certain number of ‘activities of daily living’. These could be tasks including:

  • eating
  • dressing and undressing
  • washing and bathing
  • lifting
  • standing
  • sitting
  • bending

  This type of cover is normally offered to people who aren’t working at the time of the application and therefore have no income to protect.

  It might also be offered to people in heavy manual occupations, where the likelihood of a claim being made under normal cover terms is higher. We’ll consider whether this was adequately explained to the customer.

  The level of benefit payable is usually a set amount, which will be specified in the policy.

  It can be difficult for a customer to show that they’re totally unable to carry out the activities and make a successful claim. Our role is to consider the evidence that’s been provided by all parties, then make a decision.

• When there’s no diagnosis

  You may be reluctant to meet a claim if the customer's condition hasn’t been clearly diagnosed. However, diagnosis isn’t usually a contractual requirement of these policies. We wouldn’t decide against upholding a complaint just because a diagnosis hadn’t been made.

  In these cases, we’ll assess how far the customer is ‘totally disabled’ in line with the policy, even though there may not be a clear explanation for their symptoms. We’ll check whether you made it clear to the customer how they should demonstrate this.

• Medical evidence

  We’ll assess medical evidence and other evidence provided against the relevant definition of disability in the policy.

  It’s not our role to make medical assessments, so we’ll consider expert opinion on the customer’s level of disability from a medical expert. This could include:

  • a GP
  • an occupational physician
  • a specialist treating the customer
  • an independent specialist

  When we see conflicting medical views, we’ll weigh up the evidence and make our decision on the balance of probabilities. For example, we’ll look at:

  • the qualifications the doctor or medical expert has in the field in question
  • how well they know the customer and their capabilities
  • whether they examined the customer or based their opinion on a review of notes

  A customer may have concerns about whether a specialist instructed and paid for by an insurer can be considered independent. We also hear similar concerns from businesses who say that the treating consultant or GP is likely to be less reliable because of their responsibility for and involvement in the customer’s long-term care. Our role is to be impartial and weigh up all the evidence.

  Risk of relapse

  A customer might have concerns about their condition reoccurring or getting worse if they return to work. For example, if they have heart disease, have had a stroke or suffered from stress. If we agree the customer is capable of working, we’ll consider the evidence for the risk of relapse.

  We rely on the professional expertise and integrity of medical experts. Where you have asked an expert for an opinion, we’ll check whether you quoted the correct definition of disability and explained the policy terms.

  Getting new medical evidence

  We’ll always try to resolve a dispute using existing evidence. But sometimes we need to get hold of new evidence.

  Very occasionally, an independent medical examination is necessary to help us decide a complaint. We usually ask you to nominate and meet the cost of a suitable expert, making sure that the customer agrees to this.

  Medical reports paid for by you are your property. We’ll need to get permission before releasing them to the customer’s GP (notifying the customer when we’ve done so). However, you can only rely on evidence you’re prepared to disclose to the customer and to us.

  We treat the disclosure of medical information with the utmost confidentiality and sensitivity. We’ll explain the basis of our decisions to all parties and refer to the medical evidence we used to reach our conclusions.

• Surveillance and video evidence

  You can carry out video surveillance if you think it’s warranted to assess the eligibility of a new claim or ongoing eligibility.

  If you want us to take a video into account in our decision, we’ll usually need to see it for ourselves.

  When we look at video evidence, we’ll consider:

  • whether it shows the customer carrying out their normal occupation
  • how accurately they described their level of disability

  Even if we think the customer overstated their level of disability, we may not reject the complaint on this basis alone.

  Video evidence isn’t always conclusive. It usually only covers a limited period of time and it doesn’t always show activities that are directly relevant to the customer's job. For example, footage of a customer visiting the supermarket doesn’t necessarily show their ability to perform the job they had before they became disabled.

  When there’s a conflict of evidence, we usually rely on medical evidence over video evidence. But if you’ve asked a medical expert to comment on the video, for example, on whether the activities shown are consistent with the claim, we’ll take this into account.

  We’re unlikely to take into account video evidence which hasn’t been commented on by a medical professional. However, if it shows something the customer has said they can’t do to be untrue, we may find it useful in making our decision.

  We’ll check the customer had an opportunity to see the video. If they haven’t, we’ll arrange for this to happen. If you refuse to let them see the video, we can’t rely on it to back up our decision, so we won’t consider it.

• Clinical practitioner assessments

  We can see reports from any trained professional involved in the customer's care, including:

  • physiotherapists
  • occupational therapists
  • psychologists

  These professionals often have considerable involvement in the customer’s care and can give useful information about their rehabilitation. But we might not place as much weight on their evidence as we would place on evidence from a consultant specialist.

  In the case of some physical conditions, such as back pain or musculoskeletal problems, function capacity evaluations (FCEs) can be used. They can help identify potential issues and prompt further medical investigation.

  From the results and observations, the physiotherapist will reach conclusions about the customer's level of disability and the tasks they could carry out.

  The physiotherapist will also observe and note any inconsistencies in functional ability when the customer is distracted or in the waiting room.

  If a report concludes that the customer didn’t make enough effort in the test, you may interpret this as an exaggeration of a disability. But we won’t assume this is the case, because the customer may simply be trying to avoid pain or worsening their condition.

  FCEs can be useful in adding to the overall weight of evidence but are unlikely to be decisive in resolving a case.

• Registered nurse assessments

  The claims assessor is often a registered nurse (RGN), who will visit and interview the customer at home to assess financial and medical aspects of the claim. They can give an opinion on the customer's level of disability.

  Their report can provide useful background information, for example, on how the customer manages at home and the medication they’re taking. But it’s unlikely to be decisive when we consider a complaint.

• State benefits assessments

  A customer claiming under an insurance policy may also be getting state benefits. We’ll consider Department for Work and Pensions (DWP) work capability assessments and other DWP documentation alongside other evidence. But we accept that the criteria used to assess a customer for state benefits is unlikely to be the same as in your policy terms.

• The ‘limitation of benefit’ clause

  Income protection policies aren’t meant to fully replace the customer's income. They usually provide 50% to 75% of the customer's pre-disability income, less state benefits and any income from other similar policies.

  This is to make sure that the consumer isn’t better off than when they were working. This is often referred to as the ‘limitation of benefit’ clause in policies. This clause can differ between policies.

  A customer might say they weren’t aware of the policy's limitation of benefit clause or that it wasn’t properly explained to them when the policy was sold. If we get a complaint like this, we’ll check that the limitation clause was properly explained to the customer at the time of sale.

  If it wasn’t properly explained and the customer lost out as a result, we’ll usually tell you to put them in the position they’d be in if the options had been correctly explained.

• If the customer is over-insured

  Because of the way limitation of benefit clauses operate, a customer might end up over insured. This could happen if their earnings have decreased.

  In these cases, we’ll consider whether the customer was over-insured when the policy was sold. At that point, it wouldn’t be reasonable to expect the adviser to anticipate every possible change in the customer's future circumstances.

  However, we’ll look for evidence that a change in the customer's financial position was foreseeable. If it was, we’ll look at whether the adviser took this into account when discussing the right level of cover.

  If we think the limitation of benefit clause wasn’t sufficiently brought to the customer's attention when the policy was sold, we might tell you to refund any overpayment of premiums. This may include interest from the date the customer's circumstances changed.

  To uphold (agree with) a complaint, we’ll need to be satisfied that the customer had been ‘prejudiced’ (would have acted differently) if the clause had been properly explained. One example of acting differently is if the customer had reduced the cover in line with their reduced earnings.

  Financial assessment calculations – over-insurance example

  At the time he makes a claim, Anthony is an employed office manager earning £10,000 a year. He has a policy that will provide 75% of his pre-disability income. The maximum amount the insurer will pay out based on his premiums (the ‘insured benefit’) is £450 a month. Anthony has no other accident or sickness policies, but he is entitled to state benefits of £3,000 a year.

  His financial assessment would be:

  • 75% of £10,000 = £7,500
  • deduct £3,000 (because of state benefits) = £4,500
  • divide by 12 months = £375 a month

  Result: the maximum potential entitlement is £375 a month. This is the actual benefit Anthony will get.

  Potential for raising a complaint

  Anthony might be disappointed with his benefit because although his policy had an insured benefit of £450 per month, he was only paid £375. But he can’t get more than 75% of his earnings (less other benefits), regardless of the monthly insured benefit he chose.

  In a situation like this, the customer might complain about the advice they were given when the policy was sold, which may have caused them to be over-insured.

• If the customer is under-insured

  Sometimes a customer complains that a policy is unsuitable and that they’ve been under-insured. We’ll need to consider whether the level of benefit the adviser recommended was in line with the customer's earnings when the policy was sold.

  In some cases, it’s difficult to establish the correct level of benefit required, for example, if a customer has started a new business. Because the success of a new business is uncertain, it wouldn’t be appropriate for an adviser to base their recommendation on projections of future profit.

  For employed customers, ‘indexation’ of benefit is usually more appropriate. This is where it’s recognised that their earnings will increase, in line with an inflationary index (usually the Retail Price Index).

  If an adviser recommended indexation for a self-employed customer with a well-established business, we’ll consider whether they took into account possible fluctuations in earnings, and how far calculations reflected actual net profit.

  We also see cases where the customer says they thought their policy provided ‘own occupation’ cover when in fact it was ‘any occupation whatsoever’.

  We’ll need to establish why own occupation cover wasn’t offered. It might have been because of:

  • an underwriting decision based on the customer's medical history or occupation when you assessed the risk (‘at the proposal’)
    the cost, where own occupation cover was expensive and the customer chose any occupation whatsoever because it was significantly cheaper
  • you only offering any occupation whatsoever cover
  • poor advice, where the adviser made an unsuitable recommendation
  • a clerical error - for example, the adviser ticked the wrong box

  We’ll consider whether the customer was aware of the level of cover they were buying.

  If we think it’s likely they were aware of the level of cover, we’re unlikely to uphold the complaint. If we decide the customer was unaware of the level of cover or that the advice was unsuitable, we’ll usually tell you to refund the premiums the customer has paid with interest at our usual rate of 8% simple per year.

  We’ll also consider whether the customer could have purchased suitable cover elsewhere and whether they would have taken that cover out. If we think this is likely, we’ll take this into account when recommending redress.

  Financial assessment calculators – under-insurance example

  Ramna is a personal assistant at a local authority earning £20,000 a year. Her policy provides 75% of her pre-disability income with an insured benefit of £450 a month. She has no other accident or sickness policies but she’s entitled to state benefits of £3,000 a year.

  Her financial assessment would be:

  • 75% of £20,000 = £15,000
  • deduct £3,000 (because of state benefits) = £12,000
  • divide by 12 months = £1,000 per month

  So the maximum potential entitlement is £1,000 per month but the actual benefit she’ll get is £450 per month.

  Potential for raising a complaint

  Angie could be disappointed because she didn’t receive the maximum entitlement of £1,000. But she would’ve had to have purchased an insured benefit of more than £450 a month to receive any more than that.

  In this case, we might need to consider how the policy was sold and whether the customer was underinsured.

• The ‘surrender value’ of policies with an investment element

  Although most income protection policies are standalone insurance contracts, some have an investment element.

  With these policies, the customer may be offered a lump sum known as a ‘surrender value’ when the policy expires. The amount will depend on investment conditions and the claims you’re dealing with.

  When a customer doesn’t get as much money back as they expect when the policy expires, or any at all, they might make a complaint. You might also have to ask for an increase in premiums during the term to maintain the policy's benefits.

  We’ll look at the pre-sale documentation to establish the customer's main priority at the point of sale and the policy's suitability.

  If we think the evidence shows that the customer wanted a savings vehicle, we may say that the income protection policy wasn’t a suitable product for them. But if we think income protection was the primary need, then we may decide that the policy was suitable.

  We’ll also consider whether the financial business misrepresented the product and persuaded the customer to choose this policy over other, maybe cheaper, options offered by other businesses.

  To help us to make a decision, we’ll:

  • examine pre-sale policy literature such as the key features document
  • consider any report from the adviser if it’s available

  We’ll check that the customer hadn’t made any claims under the policy. This is because it’s possible that a refund of premiums (with interest) might amount to less than the customer had already received under the policy.

  In this case, a refund wouldn’t be appropriate. A refund of premiums is meant to put the customer in the position they’d be in if they hadn’t received bad advice and taken out the policy. In this case, they wouldn’t have been able to make a claim under it.

  If we decide that the policy was unsuitable or was misrepresented, we may tell you to refund the premiums.

• ‘Reasonable adjustments’ in the workplace

  Under the Equality Act 2010, an employee has the right to ask their employer to make ‘reasonable adjustments’ to enable them to carry out their work.

  The Equality Act 2010 came into force on 1 October 2010, replacing a number of Acts which dealt with different types of discrimination separately. For events that took place before 1 October 2010, the relevant legislation is the Disability Discrimination Act 2005.

  An insurer might reject a claim (or stop paying benefit) under an income protection policy, saying that the customer could resume work if their employer made reasonable adjustments in the workplace.

  An insurer may sometimes insist that a customer pursue their right to demand reasonable adjustments even if the customer isn’t sure this is appropriate or is unwilling to. Their employer may have refused to make reasonable adjustments or may have said that it thinks they are unreasonable.

  In these circumstances, we’ll consider whether the customer has taken steps to ask for assistance in returning to work. If we think they have, we’ll then look at whether they have tried to persuade their employer to make reasonable adjustments.

  The customer can be left in a difficult position if you and the employer disagree about reasonable adjustments. When the customer has concerns about challenging their employer, we’ll look at how you supported them.

• Group policies taken out by an employer

  We sometimes see cases where the customer is not the policyholder because their employer took out the policy, such as for a group scheme.

  In group schemes the policyholder is generally the employer, not the individual employee.

  Whether the customer can complain to us will depend on whether the policy was taken out for their benefit.

  Generally speaking, we can consider complaints brought by customers who are members of a group scheme, if the policy was taken out (at least in part) for their benefit.

  In these cases, the employer will be the policyholder. This means that any award we make will go to the employer rather than the customer. The only time we may consider redress should be paid directly is where you’ve agreed to continue paying a customer benefit after they’ve left their employer.

  We often can’t look at insurance taken out for the benefit of the employer. This is because the employer itself will need to bring this complaint and it’s possible they won’t be within our jurisdiction. For example, if they aren’t a small/medium business or a microenterprise. This includes ‘key man’ insurance, as while it’s taken out to protect a key person, the benefit of this is paid to the business, not the individual.

  Communication issues might also arise if the insurer contacts the policyholder rather than the claimant. The policyholder is the employer, so the insurer will sometimes communicate directly with them, rather than the claimant (the employee).

• Deductions from other insurance policies

  As well as income protection insurance, a customer may also have taken out other, similar insurance policies, for example, payment protection insurance (PPI) to cover monthly loan repayments if they’re unable to work.

  Some income protection insurance policies have a clause allowing you to deduct from the benefit any money the customer is getting from these similar policies. A customer might complain that this is unfair, particularly if they took out the PPI to cover their loan or mortgage repayments, rather than to provide a replacement income.

  When we see these complaints, we usually interpret ‘similar’ to mean other income protection insurance. So if the policy doesn’t specifically refer to PPI or mortgage protection insurance, then we’re likely to say you shouldn’t deduct any of these payments the customer is getting from the benefit.

  If we find the customer has duplicate cover in place, this may indicate issues around how the policy was sold. We’ll check that the seller of the income protection cover pointed out the risk of deductions being made because of the customer’s other insurance.

  If we agree that the customer was aware of the risk, then we’re likely to say the deduction can be made, unless we decide that the clause is unfair.

  In cases where the sale of income protection insurance or PPI was advised, we consider whether the intermediary or you assessed what effect the sale of the policy would have on the customer's existing insurance. For non-advised sales, we’d look at whether the product documentation highlighted this.

  If the newer cover duplicated the cover under an existing policy, the customer may have a separate complaint against the seller.

Putting things right

• How benefits are paid after a complaint is resolved

  Customers sometimes think that once their complaint has been resolved, the policy will continue to pay out indefinitely. But you can choose to review the customer's level of disability at regular intervals.

  When recommending compensation, we’ll tell you to pay the claim to the present date. In practice, businesses are likely to continue to pay at least until the next claim review.

  If we decide that you shouldn’t have stopped paying the benefits, we’ll tell you to reinstate the claim, bringing it up to date (again, with interest).

  Many income protection policies contain a ‘waiver of premium’ or ‘premium protection’ clause. This means a customer doesn’t have to pay further premium payments while getting benefits. So we may also tell you to refund (with interest) any premiums the customer has paid that should have been waived.

  If we conclude that the policy was mis-sold, our general approach is to put the customer in the position they would be in if business hadn’t made the error.

  In many cases, we decide that the customer wouldn’t have bought the policy if they had been correctly advised. So telling you to treat the policy as if it were cancelled and to return the premiums (with interest) is enough to ensure the customer isn’t out of pocket.

  In other cases, we may conclude that even though there was something wrong with the advice, the customer would probably have purchased the policy anyway, so they haven’t lost any money.

  We may tell you to pay the claim in full if:

  • we think the cover had an unusual or significant restriction that wasn’t properly explained to the customer
  • the customer could have bought an alternative policy without this restriction at the time the policy was sold

  If we’re satisfied that you’ve made an error, we’ll also consider whether the customer should get compensation for any distress and inconvenience. To reach a decision about this, we’ll look at:

  • how reasonable your original decision about the claim was
  • whether you delayed the claim
  • whether the customer experienced greater distress or inconvenience because of mental or physical ill health

  Read more about our approach to compensation.

• Calculating the customer’s earnings

  When working out any benefits a customer should get, we consider their employment status, for example, whether they were employed or self-employed.

  Policies will contain an explanation of what’s meant by ‘pre-disability earnings’ and the period over which they are assessed and averaged for employed and self-employed earnings.

  The status of benefits in kind, bonus, commission, drawings and dividend payments can vary. That’s why we’ll check the policy wording carefully.

  If we’re unsure about whether the customer is (or has been) getting these types of income, we’ll ask them for clarification.

  Continuing income (money that the customer is still getting) might be deducted from what a policy pays out, even if it results in no benefit being payable. But we’ll check that the situation was made clear to the customer when they bought the policy.

• When an ‘average’ income yields an unreasonable result

  A self-employed customer's income is based on their net profit rather than turnover because it needs to take account of their expenses in running the business. In most cases, their earnings will be assessed on the basis of the previous 12 months, which usually results in a reasonable result.

  But there are some cases where the 12-month average doesn’t reflect the customer's income when they were in good health. For example, if the customer's condition becomes progressively worse and they struggle to continue working.

  You could also get an unreasonable result if a customer's income fluctuates. For example, a customer whose earnings depend on commission might earn less during an economic downturn. So their average income in the 12 months before they became disabled may not reflect the income they’d receive over a normal economic cycle.

  In these situations, we may suggest a fair and reasonable approach of taking an average of the customer's earnings over another period – for example, three years.

  Successful claim, unhappy customer

  In some complaints, the claim itself has been accepted but the customer is disappointed with the amount of benefit they get. If this is the case, we’ll first check that your calculation is correct. If it’s correct, we’ll clearly explain to the customer how the policy works and how the benefit was calculated.