“In the life insurance market, there’s a move to introducing limited term products with the same criteria as income protection but which only pay out for two to five years. This reduces the cost,” says Mr Sadler.
This is all well and good but, according to some industry commentators, the lack of a standard industry definition is leaving the door open to a myriad of copycat versions – mainly in the direct to consumer market - which are labeled STIP or even IP but more closely resemble accident, sickness and unemployment (ASU) cover, offering much reduced cover and including a whole host of exclusions in the small print.
Proper Income Protection, including short-term versions commonly labelled as STIP, tends to be fully underwritten so pre-existing condition exclusions generally don’t apply. The exact opposite applies to ASU style plans.
In writing this article I scrutinised the terms and conditions of one or two direct to consumer products labeled as ‘STIP’, I found that a 24-month pre-existing condition exclusion (PECE) tends to be the norm. The small print from one provider even went as far as to say that the PECE 24-month 'waiver' doesn’t apply to ‘chronic conditions’.
“There are many good ASU contracts out there, but there are some more dubious ones masquerading as STIP,” says Justin Harper, head of marketing and industry relations at LV=.
“There are no official figures but we suspect that sales of these types of cover might be up to 500,000 a year – five times that of true IP. Truth is nobody knows, not even its own trade association. This sector of the industry operates under the radar.”
Ron Wheatcroft, technical manager at Swiss Re, says that IP, STIP and ASU are all regulated under ICOBS – albeit in different classes according to the length of cover they provide.
So they all have their place but providers have a duty to be clear about what is and isn’t covered. “The market doesn’t need another issue akin to the PPI [payment protection insurance] mis-selling scandal. It’s incumbent on advisers and providers to make the product and benefits crystal clear.”
Aviva’s relevant life with critical illness cover
It’s been hard to ignore the furore this year surrounding Aviva’s new product. On the one hand, it was met with a mix of praise for its innovative nature and potential to help more families afford important cover. On the other, questions were raised publicly by industry experts as to whether the critical illness (CI) element breached relevant life tax exemptions.
