IP is also known as Permanent Health Insurance (PHI) because it is a permanent policy and the insurer cannot cancel it or increase premiums, with one exception. What is that exception?
A change of occupation must be disclosed, which may lead to a rating or discontinuation of cover.
What is the waiting period during an Income Protection claim before the benefit is payable called?
The deferred period.
What are the most common deferred periods for an Income Protection (IP) policy?
The most common deferred periods are 4, 13, 26, or 52 weeks.
How are benefits from an individual Income Protection policy taxed?
The insurer pays the benefit directly to the insured free of tax.
How are benefits from a group Income Protection scheme (provided by an employer) taxed?
The benefit is paid to the employer and the employee receives it as ‘salary’, net of tax and National Insurance contributions (NICs) under the PAYE system.
What is ‘rehabilitation benefit’ in an IP policy?
It is a proportionately reduced level of benefit that aims to top up earnings if an insured person returns to work part-time or in a lower-paid role after a claim.
For whom are ‘day one’ and ‘back to day one’ IP cover primarily designed?
They are primarily designed for self-employed individuals who generally have no sick pay arrangements.
In IP underwriting, what term describes the probability of sickness?
Morbidity.
What is the difference between ‘morbidity’ and ‘mortality’ in the context of protection insurance underwriting?
Morbidity is the probability of sickness, while mortality is the probability of death.
Which of the three main categories of IP cover offers the most convenient protection and thus attracts the highest premiums?
Own occupation.
An IP policy that will pay out if the individual is unable to perform their current role or a similar role requiring similar skills is known as _____ cover.
suited occupation
How does the length of the deferred period affect the premium for an IP policy?
The longer the deferred period, the cheaper the premium.
What is the primary function of Critical Illness Cover (CIC)?
It pays a cash lump sum on diagnosis of one of a number of specified critical illnesses.
What is ‘severity-based cover’ in a CIC policy?
It is a type of policy where additional payments may be made if a disease progresses beyond a particular stage, or partial benefits are paid for less severe conditions.
What is the difference between a standalone CIC policy and one combined with life assurance as an ‘accelerated death payment’?
A standalone policy pays out on diagnosis of a critical illness, whereas a combined policy pays out on either diagnosis or death, whichever occurs first, and then the policy ends.
What feature can be added to many life and health policies to ensure premiums are not payable during a prolonged period of sickness?
Waiver of premium (WOP).
What does a ‘life cover buy-back’ option allow for in a CIC policy?
It allows for a restricted form of life cover to be reinstated, without further medical underwriting, after a period of survival following a CIC claim.
What is the typical survival period required before a standalone CIC policy will pay out a claim?
A typical survival period is between 14 to 30 days after diagnosis.
What is the key difference between an ‘acute’ medical condition and a ‘chronic’ one?
Acute conditions have a rapid onset and treatment is usually short, while chronic conditions are long-lasting and usually incurable.
How are benefits paid from a group CIC policy (provided by an employer) taxed for the employee?
The benefits are not liable to tax when paid, but the premium paid by the employer is taxable as a benefit-in-kind.
What type of trust is normally used for a life policy that includes CIC to ensure the benefit is paid to the correct person?
A split trust is used to separate the life and critical illness elements.
What type of insurance is described as a relatively basic, often annual, policy that pays out for serious or fatal accidents and injuries?
Personal accident and sickness (PAS) insurance.
How are benefits paid under a personal accident (PAS) policy taxed?
There is no tax on benefits paid under a personal accident policy.
What is the main purpose of Private Medical Insurance (PMI)?
PMI provides cover against the costs of private medical treatment.
