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Clarity needed on how income protection insurance interacts with Universal Credit

More certainty around the possible impact of Universal Credit for individual income protection (IIP) customers is needed according to the ABI. The call comes following an ABI-commissioned report by the New Policy Institute published today, to help both insurers and government better understand the potential interaction between IIP and UC to ensure that those unable to work receive the financial support they need, and practical help to return to work as soon as possible.

IIP is particularly important for those who are self-employed and are more likely to have a need for IIP as soon as they become unable to work.  While entitlement to UC does not impact on the amount of any IIP payment made to the policyholder, the report points out that it can have an important impact on the net value of the payment, as it can reduce, or in some cases dis-qualify, entitlement to UC.

The report analysed a sample of 370,000 IIP policyholders across four insurers. Of the sample, four in five were under age 45, two-thirds earned between £10,000 and £40,0000, with the majority being homeowners with mortgages or tenants.

Key findings highlighted that:

  • Over half - 54% - of IIP customers are estimated to have an entitlement to UC if unable to work because of sickness or injury and have no IIP to support them.
  • 39% of policyholders would have their entitlement to UC removed because of their IIP policy.
  • 15% of policyholders would continue to be entitled to UC alongside their IIP policy.
  • The potential of IIP to serve as an alternative to Statutory Sick Pay (SSP) for those who are self-employed may be limited by the different treatments under UC.
  • Around 1 in 5 policyholders entitled to UC are estimated to be no better off at the point of claim in the short term if they have IIP than if they do not.

Roshani Hewa, ABI’s Assistant Director, Head of Protection and Health, said:

“It is in the interests of government, employers and insurers to offer financial support and services to workers through periods of sickness or injury, and to help and incentivise them back to work.  However, this report highlights that some individual income protection policyholders and potential customers, face uncertainty over what the future value of their policy may be if they need to claim on it. We need to ensure we have a system that encourages financial resilience through the take up of products like income protection. Any retreat from this cover would push up public spending on social security. 

“The findings of this report will help the Government and the insurance industry better understand how to ensure that income protection cover is always of benefit to customers.”

Dr Peter Kenway, NPI’s Director said:

“The finding that some policyholders may be no better off with IIP than if they had just relied on UC is a conclusion about the short term. The danger in it is that the long-term conclusion may be quite different. UC is not well-suited to people who cannot work for a lengthy period. As a means-tested benefit for the whole household, it is inevitable that UC should be unstable and contain disincentives to earn and save.

“Insurance-based products, by contrast, whether from private providers or the state (through national insurance), do not carry these disadvantages and are therefore more conducive to financial resilience.”

The full report can be found here
The summary can be found here


Last updated 30/09/2019