The messed up world of income protection structures

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You may have noticed that we now have to age 70 as an option for the payment term on income protection.

Saturday, September 14th 2024, 9:37AM 3 Comments

by Jon-Paul Hale

Well, I hope you have because it's been an option in the market for over 20 years!

However, the insurers have stalled on this, and some of the criteria for income protection leave me shaking my head.

Let's run through what I have found with the current options available to us.

If you apply for a two or five year benefit or any other that's not to age 65 or 70, you can only have this with a policy term to age 65.

So what about those professionals who are fairly well off but only want a two or five-year benefit past age 65 to work through pivoting life?

Yes, there is not much option. But you can take an existing contract to age 70, drop it back to a two or five year benefit term, and take that past age 65.

Yes, it's an option for servicing and retention, but not one for new applications.

Let's have a look at a different aspect.

How old is too old to apply for cover?

AIA seems reasonable, to age 65 has a maximum age of 60 for occupation classes one and two and age 55 for occupation classes three and four.

• They also apply the same rules to age 70 benefits.
• This is the same for the mortgage repayment benefit too.

Somewhat fair enough, though the restriction for occupation classes three and four is a bit tough as many "on the tools" to have this risk classification later in life are not entirely on the tools with management or training roles that pitch in when needed.

Asteron Life, they're not too dissimilar to AIA, age 60 across all occupations, age next birthday 61 as they do it, for to age 65 and to age 70.

• This is the same for the mortgage repayment benefit too.

Chubb Life does something a little different. They have the same age 60/55 approach to occupation classes as AIA but do not offer an age 70 option for occupation classes 3 and 4.

• This is the same for the mortgage repayment benefit too.

Fidelity Life steps up the confusion with its approach, which is counter-intuitive to the product selection. With Fidelity Life, age 60 is too old, maximum application age for the to age 65 benefits is current age 59.

• This is the same for the mortgage protector product too.

Where it gets strange is when you look at the to age 70 options. The maximum application age for to age 70 is 55, and only for occupation classes 1 and 2.

• That's a bit backward and restrictive to the rest. You'd think the longer term would be the higher entry age, as this represents the longest time to recoup the costs of putting the cover in place. It is also the longest time for a claim, but that's the business they are in.
• Nope. They're happy to have a five year term on the product for people over 65 but not a 15-year term on the product for people over 70.
• As I said, it is a bit backward when it comes to the mortgage protector product; there is no age 70 option for any occupation.

Lastly, Partners Life is also a little different from the rest, but the approach is somewhat consistent.

• If you look at it with a view of things as a minimum eight-year possible term, it makes sense.

On all of their disability benefits to age 65 for all occupation classes is a maximum age of current age 57. Less than all of the rest. But they don't have the occupation age restrictions the others have.

For the to age 70 benefits up to current age 62 can apply for cover. It's going to be pricey, but it's possible.

Now, this little jaunt into the weeds isn't without reason. I have a client who is 59 and looking for income cover. They have never had it before and have decided they probably should.

That jaunt left me shaking my head. It says to me advisers aren't using the age 70 benefits enough to encourage insurers to continue product development in this area.

My chat with a couple of providers appears to have put this on the radar, but seriously, some of the options available don't make sense, and some of the options that are not available make the life of an adviser hard.

I have had feedback that some advisers have been playing the implement and immediately service game to get shorter-term payment terms with age-70 contract terms, but we shouldn't have to do this.

We've heard noise about the retirement age increasing for two decades. It hasn't happened here yet, but with the rise in people working past age 65, and with our job to protect people, why isn't age 70 your default starting point for disability coverage?

I know it's not because all of the insurer quoting tools default to age 65. Well, they did when I started this with Fidelity Life announcing changes the week I'm finishing this off for how they approach WOP defaults.

• It seems like the insurers don't want the option used.

I'll reiterate this again: It is the insurer's job to manufacture and price products for the market, and it is the adviser's job to match and deliver suitable products for the client's needs.

• Because the insurer doesn't like providing an option or discourages it, you should take it as a sign that it's probably a good product for the consumer!

I'll leave you with this thought: if your client had a claim at age 63 with a five year benefit you reviewed some years prior, wouldn't it be a bit tragic if they only got two and a half years out of it?

I know the insurer prices it for less with the remaining term, but that's not the point here. The client paying for a five year disability benefit has a reasonable expectation that it will pay for five years of disability when product options allow for it past age 65.

It's time providers had a good hard look at their offer in this area, because the reality is the world has moved substantially and we're in an environment where long term expectations of both our advice and our products is substantially higher than it was in the '00s when to age 70 was put in the market.

As an adviser, change your approach to start with to age 70 if you haven't already.

Providers, please dust off the play book here and tidy up your product offering, as it is hurting your new business and creating extra work and costs for you with what's currently available. The simple one is do what Fidelity Life has done on their waiver illustrations, set the default to age 70.

Tags: Jon-Paul Hale

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