The field of income protection insurance is complex as it has a huge range of products and several confusing technical terms in its policy wordings. Terms such as initial exclusion, excess, full exclusions, waiting period, benefit period etc that are used by the insurers to describe their products are not self-explanatory. Customers struggle to understand the difference between these products and they often end up choosing either a wrong product or end up paying for benefits they don't actually need.
The protection market in the UK is served by a wide range of insurers. Currently 52% of insurers offer protection insurance. This includes income protection insurance, payment protection cover and unemployment insurances. About 44 % of insurers offer unemployment benefit on a standalone basis i.e. without the requirement of loan, mortgage or rent. One of the key characteristics of these products is how many months do the insurers pay the benefit amount in the event of a claim. While 70% of the protection policies pay 12 months benefit, 19% offer 18 months, only 11 % offer 24 months benefit.
So how can customers find their way in this maze and ensure that they buy the right product? In order to buy a fit for purpose protection policy, first of al,l customers should have a clear understanding of what they want to protect - is it income, mortgage, loan or other payments. And then, they need to be clear about the benefit amount i.e. how much they need every month if they have to make a claim.
In terms of comparing insurers and benefits, policy documents are also a good place to start. Most responsible insurers tend to provide FAQs, Jargon Busters on their websites. But all the legal language in the policy wordings can be daunting and confusing.
The good news is that Defaqto recently launched a new drive to explain protection insurance to the lay person in simple terms.
Defaqto not only explains protection insurance in easy to understand language, but also bench mark products based on quality. Defaqto is currently the only non-biased organisation that does benchmarking of protection products. Defaqto researches the market by asking insurers and brokers to submit their policy wordings. After taking into account a wide range of features and benefits, Defaqto gives each product a rating from one star to five stars, depending on how comprehensive they are. The star ratings are designed to help the customers choose right income protection and payment protection products. Defaqto's analysis and star rating definitely de-mystifies some of the misconceptions people have with the complicated terminologies.
The challenge with organisations such as Defaqto is how often their database of products is updated. Unless Defaqto updates its database on products and insurers regularly, it has the risk of becoming an out-dated tool.
Until recently, the banks have been the largest distributors of payment protection products. However increased regulation and the myriad of PPI claims have led to the banks abstaining from selling such products. The only form of distribution for protection products that is currently available is through financial advisors or through the online websites.
While there is a lot of information available and organisations such as Defaqto assist customers in choosing the right product, ultimately, the best way is for people to invest quality time in understanding the key terms and choosing a product that meets their requirements.
Kesh Thukaram is an insurance specialist in the protection insurance sector of UK. Well respected for his hands-on knowledge and product innovation skills, Kesh is invited by several insurers to assist them in designing products and insurance customer acquisition and management processes.
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