Self-employed customer’s complaint rejected under limitation of benefit provision

Income Protection

Phil put in a claim when a repetitive strain injury meant he couldn't work as before, but a review of his accounts then stopped the benefit. We took a look to make sure the decision was fair.

What happened

Phil, a self-employed IT consultant, took out an income protection insurance policy. The policy had a limitation of benefit clause. This restricted the amount of benefit he could be paid - 75% of his normal earnings.

A few years later, when repetitive strain injury affected his ability to work, Phil made a claim under the policy.

Phil's insurer reviewed his business accounts to see if the injury affected his income. They notes he hadn't recorded payments made to a sub-contractor. They also found that the accounts didn't show all Phil's income and expenditure. So they decided that the accounts were unreliable.

But the insurer did agree to pay Phil's claim until they could review the audited accounts. They then reconsider their position.

When they examined the audited accounts, they compared Phil's pre-disability earnings with his net income and 'drawings' for the period after he made his claim. They said he hadn't suffered a loss of income due to his disability. So they stopped his benefits payments.

Phil didn't believe this was right, so brought his complaint to us.

What we said

When a self-employed policyholder makes a claim, the insurer needs to see that there was a loss of income. We checked, but didn't see that Phil's audited accounts showed a loss.

Despite his disability, Phil's business remained profitable. He actually made a higher net profit in the period after his claim than in the year his injury began.

Phil didn't agree with the insurer's assessment. He told us that the accounts showed an artificial profit and he had to borrow money to remain trading. But the turnover suggested that sales sustained profits, rather than just borrowings.

We decided not to uphold Phil's complaint. Because of the limitation of benefit provision in Phil's policy, he would have needed to earn less after his injury than before. But he continued to earn more that he would have done if he had been entitled to the benefit.