His pre-tax profits were £21,000 and his allowable fixed overheads were £16,092. This comes to £37,092. The maximum cover available through his insurer is 65 per cent of £37,092, so £24,109.80. Joe’s total sum insured £24,109.80.
Unfortunately, Joe is involved in car accident and is unable to work.
His business cannot continue to trade without him, but his overheads remain the same. When he claims, Joe provides his insurer with evidence of his pre-disability earnings and fixed overheads. As all the above fixed overheads are listed in his company accounts and are verified as continuing despite his incapacity, his claim can be paid in full.
Six months after the income protection claim starts to be paid, Joe’s van loan comes to the end of its term as it has been fully repaid. This monthly amount is deducted from his outgoings and his monthly claim payment would be reduced to reflect that.
Once he is ready, Joe decides to employ staff to allow his business to continue to trade in his absence.
If the business continues to make a profit, and the income from this cover together with business profit exceeded the maximum annual benefit, his insurer could reduce the amount they pay accordingly.
Myth 2: multiple occupations cannot be covered
The latest Office for National Statistics labour market findings suggest more than 1.2mn people across the UK have a second job.
Clients who have more than one job are still able to apply for income protection. From an underwriting and claims perspective, what needs to be considered is whether the client wants to cover the loss of income from their primary occupation, or from both.
Where a client wants to cover only their primary occupation, an underwriter might assess the similarity of the two occupations and the occupation classes attached to each.
If each role is very different and have different occupation risks associated, then an underwriter might exclude the second occupation. This could mean that not only would the insurer decline to pay a claim if the client was unable to perform the duties of their second occupation, but they would also not pay a claim if the client sustained an injury during their second occupation which prevented them from performing the duties of their primary occupation.
If a client wanted to cover both occupations and both are eligible for income protection, an underwriter might amalgamate the salaries for both occupations and apply the most cautious occupation class. As with the previous example, if either occupation did not qualify for cover an exclusion could be applied.
