A Look at Protection Insurance
Protection insurance provides a vital role in making a homeowner sleep soundly at night or a worker not to have to worry about being off for a while sick. Despite the recent bad press about the way the insurance has been sold to the public in the past, the products offer good value and a range of covers.
Mortgage protection and income protection insurance are the two main types of insurance available on the market today.
On the face of it they appear to be very different products providing cover for very different items, however both are a type of protection insurance cover, originally known as 'permanent health' and it could be argued that they offer the same cover for the same risks, with a different marketing angle.
Both provide a monthly cash sum to cover out-goings when the policyholder cannot work due to sickness, an accident or a period of short-term unemployment.
Permanent health is more commonly known today as accident, sickness and unemployment insurance or protection insurance.
All protection insurance policies are designed to provide a monthly income on a short-term basis often no longer than a year, to people who cannot work due to one of these perils.
Policies pay out benefits if you are sick, injured or lose your job. Benefits are paid out on a monthly basis for the term agreed. The policyholder pays a small amount of premium each month by direct debit for the cover.
A brief history of protection products
Permanent health insurance emerged in the UK around 1900 and was sold in the days when insurance salesman knocked on your door touting their products. The 'Man from the Prudential' on his weekly visit with his notepad and receipt book, is a classic example of such door to door sales.
Permanent health insurance provided limited short-term protection for workers and their families if the main breadwinner suffered an accident or was injured at work. This was in the days before health and safety ay work, unemployment benefit, sickness pay, statutory sick pay and accident claims lawyers.
The concept of different types of protection insurance first emerged in the 1980's with the increasing home ownership and a consumerism zeitgeist, the market responded to a need for more flexible and desirable covers by promoting protection insurance.
Initially mortgage protection was sold in vast numbers to the new home owning public, often by the same company who was providing the mortgage or loan. The fact that it was often mis-sold to people who could not possibly claim such as the self-employed, or that people felt coerced into buying the product on fear of not being given the mortgage, did not seem to matter at the time.
People like to protect their property and religiously paid their monthly payments for cover.
The 1980's was also a time of boom bust and unemployment was high, as the Western economies restructured and heavy industry went into decline.
The insurance companies immediately saw a gap in the market and produced income protection insurance for unemployment. After all most workers had monthly expenditure, even if they did not own their own property.
Mortgage protection was only available to homeowners, however income protection insurance could be offered to everybody in work, tripling the market potential for sales. The fear of being unemployed at the time was enough to make the product an instant success.
The mis-selling scandal of the early twenty-first century has led to a drop in sales over recent years, however the products remain good value for those who are eligible.
Mortgage and Income Protection
Today both products are widely available to the public and can easily be bought online.
Mortgage and income protection often covers the same benefits for the same events and policyholders should only buy one or the other to avoid double indemnity problems.
The same personal data is collected in the same way in order to issue a policy, with the exception that a proposal for mortgage protection will ask for the current mortgage company details.
Both types of protection insurance are handled in the same manner from both an underwriting and claims perspective, although there are subtle differences between the two products and their respective policy wordings.
Terms and conditions regarding cover in the event of a claim are broadly the same for each types. Both types of policy will exclude people who do not fit strictly defined criteria, such as the requirement to have been in work for at least six months in order to qualify for cover, or not to have any pre-existing medical conditions.
The main difference between the two protection products is that in the case of mortgage protection, the benefits are designed to cover monthly mortgage costs alone.
To enable the benefits to cover the large costs of most mortgages, the amount of benefit paid under a mortgage protection agreement is usually significantly higher than the most that can be paid out under an income protection insurance policy.
Income protection is designed to cover monthly bills and out-goings and is usually restricted to a maximum of fifty percent of the proposer's monthly income.
Mortgage protection polices these days often allow the policyholder to top up the benefit to even higher limits to cover additional monthly costs such as public service bills and council tax. This additional cover is effectively to cover income.
With the ease of use of Internet, many protection insurance offerings are available today and it is very easy to shop around and compare prices, covers, exclusion clauses, and limits of indemnity for all variations of this type of insurance.
9:50 AM
Z Shah
