Self-employed consumer’s income protection complaint rejected under limitation of benefit provision

Income Protection

Phil claimed on his income protection policy 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, held an income protection insurance policy with a limitation of benefit clause. This restricted the amount of benefit he could be paid  to 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. It noted he hadn’t recorded payments made a sub-contractor. It also found the accounts didn’t show all Phil’s income and expenditure. Although the insurer thought these accounts were unreliable, it agreed to pay Phil’s claim until it could review the audited accounts and reconsider its position. 

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

 Phil didn’t believe this was right and complained to the insurer. Unhappy with the response, he 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 all Phil’s accounts, but didn't see that these showed any financial loss.

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

Phil disagreed. He told us that the accounts showed an artificial profit and he had to borrow money to remain trading. But we thought the turnover in Phil’s accounts suggested his profits were based on sales rather than just borrowings.

After looking carefully at all the evidence, 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 for the insurer to accept his claim. But Phil continued to earn more that he would have done if he had been entitled to the policy benefit. This meant he didn’t meet the criteria set out in the policy terms for his claim to be successful.