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Income Protection

Income Protection

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Income Protection

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  1. For advisers only. Not for use with customers. Income Protection Increasable Insurance Option

  2. Income Protection Options • To ensure against increases in peoples future Income, Friends Provident offers the following Increasing Cover Income Protection Benefit policies up to 10%: Increasing (5%) Income Protection Increasing (RPI) Income Protection

  3. Income Protection (Level or Increasing) Increasable Insurance Option Increasable Insurance Option • However, for applicants who want the choice of whether or not they want to increase their cover, and to choose by how much, there is another option available. • Applicants can choose to ‘bolt on’ the Increasable Insurance Option.

  4. Income Protection (Level or Increasing) Increasable Insurance Option Increasable Insurance Option • The Increasable Insurance Option can be added to Level Cover Plans or Increasing Cover plans.

  5. Increasable Insurance Option • By adding Increasable Insurance Option, the policyholder can choose to increase his/her cover at policy anniversary stages during the term of the policy. • This is particularly useful for people who want the choice of whether they want to increase their cover. • It is also useful for applicants who anticipate that their earnings will rise significantly in the first few years, because they can also add the Increasable Insurance Option to ‘Increasing Cover’ plans.

  6. Increasable Insurance Option - Mechanics • The minimum increase in premium when using the Increasable Insurance Option is £5 per month • If the Increasable Insurance Option is chosen, the minimum term of the plan is 13 years • The total increase of benefit, using the Increasable Insurance Option can be up to 30% of the total original sum assured • New plans effected, using the Increasable Insurance Option, will not contain this option • The Increasable Insurance Option is not available if a policyholder is using the Career Break option.

  7. Increasable Insurance Option - Mechanics • When the Increasable Insurance Option, the terms and conditions will be those applying at the time the new policy is effected. • The cost of the new plan will be based on the age of the insured at the time of using the option.

  8. Increasable Insurance Option Case Study - Tony

  9. Tony works as a Self Employed Recruitment Consultant and takes out a Friends Provident Income Protection policy. Tony has only been in business for 18 months and as such, his income is erratic at the moment. Tony’s IFA explains the various policy options to him. Increasable Insurance Option – Case Study

  10. Tony is concerned that if he takes out a level policy, when his income increases over the next few years, it might not give him the cover he will need. But he doesn’t want to take out an increasing policy because this will automatically increase his cover and premium by either 5% or on the same basis as the Retail Prices Index. Increasable Insurance Option – Case Study

  11. The cost of a Level Income Protection policy is quoted as £20.50 a month. The ‘Increasable Insurance Option’ can be added to the policy for an additional 20% of the premium. This means that the total cost of the policy, including the Increasable Insurance Option is £24.60 a month. Increasable Insurance Option – Case Study

  12. Tony decides to take out a Level Cover Income Protection policy, and include the Increasable Insurance Option. Adding the Increasable Insurance Option will cost Tony a little bit more than a Level Policy, but he has now secured Guaranteed Insurability for the future. Increasable Insurance Option – Case Study

  13. £250 a week Start of policy Increasable Insurance Option – Case Study • Tony’s income at the start of the policy is £20,000, so he takes out the maximum available Income Protection cover: • £250 a week (£13,000 a year)

  14. £250 a week Start of policy Increasable Insurance Option – Case Study • Because the original Sum Assured is £250 per week, this means, at each 3 year anniversary, he can increase his cover by up to30%of the original sum assured – in other words£75 a week.

  15. £250 a week Start of policy Increasable Insurance Option – Case Study • On the 3rd anniversary of taking out the policy, Friends Provident write to Tony, informing him of his option to increase his cover by up to 30% - should he wish to. Year 3

  16. £284 a week £250 a week Start of policy Increasable Insurance Option – Case Study • Tony’s income is now £23,000 a year, so he needs cover for the additional £3,000 a year. • Maximum benefits for £23,000 are £284 a week, so Tony requires an additional £34 a week cover. Year 3

  17. Increasable Insurance Option – Case Study • On the 6th anniversary of taking out the policy, Friends Provident write to Tony again decides to take his option to increase his cover by up to 30% of the original sum assured - should he wish to. £284 a week £250 a week Start of policy Year 3 Year 6

  18. £353 a week Increasable Insurance Option – Case Study • Tony’s income is now £29,000, so he needs cover for £6,000 of his income which is not covered. • Maximum benefits for £29,000 are £353 a week, so Tony requires an additional £69 a week cover. £284 a week £250 a week Start of policy Year 3 Year 6

  19. Option Used Option Not used Option Not used £394 a week £394 a week Year 9 Year 12 Year 15 Year 18 Increasable Insurance Option – Case Study • And this will continue until the 18th year anniversary of the policy. £353 a week £284 a week £250 a week Start of policy Year 3 Year 6

  20. Option Used £461 a week Start of policy Year 3 Year 6 Year 9 Year 12 Year 15 Year 18 Increasable Insurance Option – Case Study • On the 18th year anniversary, Tony’s income is £40,000. He can use his Increasable Insurance Option for the last time. • Maximum benefits for £40,000 are £461 a week, so Tony requires an additional £67 a week cover. £394 pw

  21. Option Used £461 a week £461 pw Start of policy Year 3 Year 6 Year 9 Year 12 Year 15 Year 18 Increasable Insurance Option – Case Study • From the 18th year anniversary, the Increasable Insurance Option expires and the policy continues for the remaining term on a Level basis

  22. Increasable Insurance Option – Case Study • The benefit to Tony is that his health might have deteriorated during his life time. • But Friends Provident will not re-underwrite Tony each time he chooses to increase his cover. • The Increasable Insurance Option has given Tony the ability to make significant changes to his benefit cover when it suited him.

  23. Increasable Insurance Option – Key Messages • Some Life Offices don’t offer Increasable Insurance Options. • Friends Provident only charge 20% of the initial premium to include this valuable option. • Some Life Offices who include increasable options will only allow the policy holder to exercise the option a limited number of times – sometimes only once. • And with most Life Offices, Guaranteed Insurability options tend to only be allowable on ‘special events’ – Mortgage Increase, Marriage, Salary increases, childbirth and with certain limitations. • Friends Provident believe in protecting peoples standard of living, so along with higher benefit levels available and choices of Level, Increasing Cover and Increasable Insurance Options, customers are able to achieve this.