What is income protection insurance?
Income protection policies give you an income if you can no longer work due to ill health or disability (sometimes called incapacity). They’re not the same as loan protection or payment protection insurance (PPI), which usually only provides short term benefits.
You normally take out an income protection policy as a single plan, not as part of a package. However, some policies do have an investment element. With this type of policy you get a lump sum when the policy expires. This is called a ‘surrender value’.
Income protection policies don’t replace all your pre-disability income. They usually provide a proportion of your income. This will be minus state benefits and any income you get from similar policies. This is because benefits are usually paid tax-free. It also gives you an incentive to return to work.
You might have taken out income protection yourself or through your employer. Policies taken out through employers are often known as ‘group schemes’. You join the policy as a beneficiary – this means you can make a claim to get payments. Your employer is the policyholder.
Types of complaint we see
Below are some examples of the complaints we see:
- my claim has not been accepted
- my claim has been stopped after a review
- the policy is taking too long to pay out
- I’m not happy with the advice I got when I bought the policy
- I’m not happy with how the policy terms work in practice and the impact this has on my claim
Most of the cases we see are about claims not being paid. However we do also see complaints about claims that are being paid, but the consumer doesn’t think things have been worked out correctly.
If you have a complaint like this, it’s important to remember that your insurer has the right to review your health and disability during your claim. This could mean they stop paying if they no longer think you qualify.
Your insurer needs evidence of your pre-disability earnings. Some important things to consider when it comes to earnings are:
- If you’re self-employed or work in an industry where your salary fluctuates, such as seasonally, you may want or need to provide evidence of your earnings over a longer period than the policy sets out. This is so an insurer can work out your average earnings and make a fair payment.
- Our service doesn’t provide an accountant or actuarial role. We can review calculations to see if the right information has been used and in the right way, but we wouldn’t break down complex calculations or do our own calculations.
- We understand that reporting self-employed or small business income can be complex. The way you’ve reported or recorded this is likely to be based on advice from your accountant. Your policy terms should set out what figures will be used for the policy benefit, so you should read these carefully. Standard policies may not deal with self-employed income in the way you expect or need, so it’s important to check your policy is suitable for you.
- When you claim, an insurer will ask for evidence of your pre-disability income and base what it pays out on this and the policy terms. So it’s important you are honest about your income and get the right level of cover. We sometimes see complaints where people have declared a higher income than they really earn at the point of sale, with the hope of claiming this figure later.
Complaints we can’t help with
If you have a complaint against an independent financial adviser, we may not be able to help if both the following apply:
- it’s about something that happened before 14 January 2005 and,
- the policy doesn’t include an investment element, for example, a surrender value
What we look at
To consider a complaint fairly, we’ll look at:
- the evidence you provided to show proof of your disability and assess the evidence about your health
- the policy terms and conditions
- your ability to perform duties related to your job, based on the policy’s terms and definitions
- if you have a complaint about how much the insurer is paying out on a claim, we’ll check how the insurer calculated your payment and if it looks correct
- we look at the ‘deferred period’ that applies to your policy. This is the amount of time you have to have been off work before the policy will start paying you benefit. When you took out the policy you will have agreed how long this will be
People usually try to match the deferred period to the amount of sick pay they get. For example, if you get six months’ full pay from your employer, you might buy a policy with a six-month deferred period. This means that your income protection policy would start if you were still unwell when your work sick pay ended
It’s important to remember that income protection cover is an insurance policy designed to pay out if you’re physically unable to work. It’s not for the insurer to find you another job or get involved in workplace disputes. We understand that workplace issues can be very difficult and stressful. But we have to assess in line with the policy terms and what the insurer is responsible for.
Lots of employers give employees the option to take out income protection cover as a work benefit. This could mean the employer contributes some money, or the policy is paid for through a salary deduction.
If you have this type of policy, you’re not the policyholder – your employer is. These policies are often called ‘group schemes’.
If you’re in a group scheme, we can consider a complaint if the policy was taken out for your benefit. This is where your employer intends to pass some of the policy benefit (payments) to you.
However, any award we make will go your employer as the policy holder. We would expect an employer to pass benefit on to you. But we can’t get involved in disputes about this if it doesn’t happen. We can only look at the insurer’s actions and if it has correctly paid the employer.
We know that workplace issues or disputes can be part of the reason you don’t feel able to go to work. It can be upsetting to find out that your employer will be paid the benefit from any successful complaint, or that an insurer may be talking to your employer about your claim. But the employer is the policyholder, so they do have a right to some information about their policy.
If there’s a specific reason you think you should be paid directly, you can tell us about this. However, we may not be able to tell an insurer to pay you directly. A workplace dispute in itself isn’t likely to be enough to change who the funds are paid to.
If you complain that your insurer is unfairly declining your claim, we’ll need to assess your ability to work. We need to decide whether you’re unable to work as defined by the terms of the policy. We’re not medical experts – we’ll make a decision based on the expert evidence we see.
When we consider a case, we sometimes have to reach a conclusion about your level of disability. There are four main categories for disability in income protection insurance. These look at whether you can perform:
- your ‘own occupation’ – this is the role you had just before you became disabled
- ‘any suited occupation’ – this refers to other job roles that you might be able to do if you can’t do the job you were doing before you became disabled
- ‘any occupation whatsoever’ – a policy with this term means that you’ll only be paid where you’re unable to carry out any occupation at all
- neither your ‘own’, ‘any suited’ or ‘any’ occupation, because you’re considered to have ‘total disability’ – some policies say you must experience ‘total disability’ to get paid benefit. This will be defined by the policy terms. We look at whether you are totally unable to perform the essential or material and substantial duties of your ‘own’, ‘suited’ or ‘any’ occupation
Your policy may not include all of these.
How to complain
If you have a complaint, talk to your insurer first. They need to have the chance to put things right. They have to give you their final response within eight weeks for most types of complaint.
If you’re unhappy with their response, or if they don’t respond, let us know. Bringing a complaint to us is straightforward and won’t cost you anything. We’ll check your complaint is something we can deal with and, if it is, we’ll investigate.
Putting things right
If we think your insurer has made a mistake or treated you unfairly, we’ll tell them to put things right. This usually means that they need to put you back into the position you'd have been in if the problem hadn't happened.
We’ll also consider whether you’ve experienced any distress or inconvenience as a result of what the business did wrong and whether we think it’s appropriate to award compensation.
Electrician disputes policy definition of ‘total’ disability
Income Protection Insurance
Consumer, unable to work, entitled to benefits despite insurer’s decision
Self-employed consumer’s income protection complaint rejected under limitation of benefit provision
Information for financial businesses
If you’re a business looking for information to help you resolve complaints or want to find out more technical information, you can find more detail about complaints about income protection insurance in the business section of our website.