Income protection: Income protection problems to avoid

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Watch out for income protection policies that cover you on an 'activities of daily living' basis

Whilst many income protection policies provide perfectly suitable cover, there are a few which make it difficult to make a successful claim following certain injuries or illnesses. 

It's certainly worth reading the small print on any income protection policy so you know exactly what situations are likely to be covered. 

Here, we list a few issues to bear in mind when selecting an income protection policy.   

Activities of daily living (ADL)

There are several types of policy which you could be entitled to when applying for income protection. 

Pick of the pack when you're choosing a policy is 'own occupation' cover, which pays out if you're unable to do your current job. Next best is a 'suited' policy, under which you're expected to look for work for which you're suited by training and education. This might mean accepting a job that is similar to your current role, but less physically demanding.

Few providers now offer the third definition, 'any occupation', under which you’d be expected to take any job you’re able to do. However, several providers do still cover some customers on a fourth basis, known as 'activities of daily living' (ADL) or 'activities of daily work' (ADW).

Go further: Our income protection checklist could help you pick the best policy for you

To be covered under an ADL or ADW definition, you'll usually have to prove yourself incapable of around three out of six activities, such as doing laundry, cooking and housekeeping, or, in some cases, walking, using a pen or keyboard, hearing, speaking or seeing.

ADL-based definitions originally allowed insurers to offer cover to stay-at-home parents. While some insurers still use the ADL or ADW method, others won't insure stay-at-home individuals at all.

We believe the basic activities covered under ADL- and ADW-based policies exclude too many people from making a successful claim, and could leave consumers with a false sense of security. 

Occupation-based cover

The type of income protection you’re offered will depend to a large degree on your occupation. 

With most insurers, there are four occupational groups ranging from administrative staff in group one through to riskier jobs like builders and couriers in group four. Group four occupations are most likely to be offered ADL-based cover by some insurers, or be declined altogether.

Back and neck problems and stress-related illness

When it comes to common illnesses, such as stress and back pain, several policies make it hard to claim. When we looked at income protection policies, we found that some would pay out if you were certified as ill by your doctor, whilst others would insist on physical evidence of the underlying cause.

PG Mutual's policy terms, for example, state that it won't cover any mental or nervous disorders 'without demonstrable organic disease'. Similarly, insurers British Insurance and I:protect may only pay out for back pain where there is 'radiological medical evidence of abnormality' or 'scan evidence'.

Barclays insists on a psychiatric consultant's report for stress, and an orthopaedic consultant's report for backache. With these types of conditions, providing concrete physiological evidence can often prove extremely difficult.

If you're buying an income protection policy, make sure you ask the potential provider whether it covers back, neck and stress problems, and on what basis.

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