Posted on: 13-05-2016 in Insurance
Insurance has hit the news this year with the compulsory roll-out of medical insurance in Dubai set to achieve 100% coverage by July.
An appetite for insurance in general has been whetted. UK expats want to find out how other insurance products could help them,but there’s so much to choose from! In many insurance sectors, there are simply too many products on offer to grasp them all in their various combinations. It’s enough to make you think it can’t be worth the hassle if it can’t even be explained clearly.
Here at Holborn Assets we are hearing complaints that, when it comes to the sector of Income Protection (IP) Insurance in particular, it is hard to see the wood for the trees. There is an overwhelming choice of IP Insurance products that are similar – but subtly different.
Let’s look at similarities: what’s the general idea of these IP Insurance products?
IP Insurance protects you in some way against a future inability to earn money, whether through accident/sickness/unemployment. IP Insurance is available from local and international providers in such variety that packages can be crafted by a broker to suit a customer’s personal financial scenario perfectly. So that’s the good news.
The bad news is that IP Insurance remains confusing. Income Protection (IP) Insurance is not, for example, the same as Intellectual Property (‘IP’) Insurance – which relates mainly to Patents and has nothing to do with personal finance.
So if even the name of this insurance is misleading, where do you start?
Well let’s start with you. What can Income Protection (IP) Insurance offer you, the UK expat?
If you find you suddenly cannot work in the future – for whatever reason – IP Insurance gives you something you can do right now to prepare for that financially.
That means you can effectively buy peace of mind. Like any other form of insurance, the bottom line of IP Insurance is in hardwiring certainty into the personal finance projections of the customer; laying down some stones in the sand as it were measures that can be counted on in the shifting landscape of the financial future. The management of uncertainty is what you are paying for, ensuring that, as Kenneth de Zilwa, General Manager of Holborn Assets – Sri Lankan puts it, “the ups and downs of life are adequately addressed.”
‘Self-insuring’ makes sense. Why not simply put enough cash away as you go along so that, if the worst does happen and you cannot work, you have something to fall back on? That’s what savings are for – right?
Well, yes and no. Saving is always a good idea. Nobody needs to tell that to the canny expat working in Dubai!
But, if you’re going it alone, you’re really going to have do some sums – and they might not add up. Heed the warning of UK personal finance site gocompare.com that, “while everybody needs a rainy-day savings fund, you should be aware that you may need a very significant sum to match the sort of pay-outs that can be offered by policies like life insurance, critical illness cover and income protection.”
Exactly how ‘very significant’ your savings need to be to match the payback of an insurance product is something only you and your broker can determine from face-time analysis of your unique financial profile.
There are differing opinions in the comparison industry as to how the whole gamut of IP Insurance products fits together.
Certainly one way of really getting to grips with what’s on offer is to classify IP Insurance products by the length of time they pay out for:
Short-term products – often known as ASUs (Accident/Sickness/Unemployment), cover a temporary inability to work and earn; paying out for a few years at most.
Long-term products – pay out indefinitely (until death) in the event of a permanent inability to work; usually do not cover unemployment.
Short-term products are called ASUs because the trigger for pay-out always involves at least one of the three calamities of Accident, Sickness or Unemployment – often in combination (as with Accident/Sickness cover) or singly (as with Unemployment Only cover).
As for what future outgoings you can protect with an insured income, there are two main types:
ASUs are characterised by a fixed ‘benefit term’. This means that benefit payments will only be made for a few years at most, according to what you and your insurer (or broker) have agreed.
You can tell a long-term IP product from a short-term IP product by its unfixed benefit term. With a short-term product, the benefit term is fixed, finite. iWth a long-term IP product however, payments will usually be paid indefinitely.
Long-term IP payments will be made in the event of partial/permanent inability to work through accident or sickness. Unemployment through redundancy is usually not covered.
The cost of long-term IP Insurance depends on how flexible in your work you are prepared to be in the future.
If calamity prevents you from doing your own job and you could do many other jobs but do not want to – then that ability to pick and choose is going to be expensive. UK financial comparison site moneysupermarket.com confirms that, “the best policies are those which pay out if you can’t do your own job, but premiums are more expensive.”
At the other end of the scale, if you become incapable of doing any job at all – and therefore have no choice whatsoever in what you do because you cannot do anything – then insurance is cheaper. Some consolation, that!
Insurance is not – and never has been – a free lunch. You get what you pay for. And in the case of long-term IP Insurance, insurers will commonly offer one of three choices:
With the two types of Income Protection Insurance, the clue is in the name when it comes the difference between them – long-term vs. short-term. But what do short- and long-term policies have in common?
The strength of the IP Insurance sector is also its weakness: the abundance of IP products means consumers can enjoy powerfully-personalised packages – but often only at the cost of a great deal of initial confusion.
But all’s well that ends well. However you research IP Insurance is up to you, but you are in for good luck. Whether you go and speak to an expert or let the “experts” on the internet speak to you, this is an area so rich in related products that you stand to find exactly the deal that suits you – provided you deploy the right pair of expert hands to dig it out of the teeming market.
We hope this gives an insight and some help on the income protection. Here at Holborn Assets, we carry the requisite experience and expertise to help you get started with your investment drive. To learn more, get in touch with a qualified independent financial adviser today.