Many people mistakenly believe that insurance companies will try not to pay out on income protection insurance claims. This is not the case according to the Association of British Insurers (ABI), and an FTAdviser.com article from January 2017.
Income protection insurance is often confused with payment protection insurance. Both types of protection can help to pay debts if a borrower loses their job, but payment protection insurance was often mis-sold and there were news reports of people finding it difficult to make claims. Payment protection insurance was specific to a particular loan, whereas income protection insurance pays a regular payment based on a percentage of a person’s salary when they cannot work through illness or injury.
One insurance company, Cirencester Friendly, has said that 94.7% of their income protection claims were successful in 2016. Of the few claims that were denied, there were three principle reasons for turning down the claim. Some claimants could not provide evidence of their earnings, while others did not suffer any financial loss. Thirdly, claims were sometimes turned down because claimants failed to report an existing health condition.
The ABI has reported that over 92% of income protection insurance claims are paid out by its members.
The largest number of claims (34.3%) were for injury and accidents. There were also high claims for back, hip, neck, shoulder, hip and knee conditions that forced people to leave work for a while.
Income protection insurance can help pay the mortgage and other bills if the main income earner cannot work for a period due to illness or accident.