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Limited term protection potentially putting clients at risk

25 March 2018

Financial information group Defaqto has reported a decrease in the number of income protection products available, but a rise in ‘limited’ term products, potentially putting customers who buy those at risk in the event of a long-term illness or life-changing injury.

The number of income protection products has fallen by 13% in the last five years, from 56 in 2013 to 49 in 2018, while the number of providers operating in the market has also dropped by a quarter from 32 to 24.

Defaqto said it had identified a “potentially worrying shift” towards limited payment policies. Unlike term-to-retirement policies, which pay out from claim until retirement, limited policies only pay out for a set number of years, usually between two and five. If the individual is unable to return to work before the payment term is up, they risk being left without an income.

Five years ago, the majority of products (68%) only offered term-to-retirement cover, but this number has fallen to just over half (53%).  In contrast, almost half of products (47%) offer fixed term payment options, compared to just 32% in 2013.

Ben Heffer, insight analyst life and protection, Defaqto, said: “We spend thousands of pounds each year insuring our homes, cars and gadgets, and yet we rarely think of insuring ourselves. If you had a machine that generated your salary every month, you would make sure that was insured. If you get a serious illness or life-changing injury, payments from an IP policy can offer you a financial lifeline and real peace of mind.

“Whilst there has been a shift towards limited policies, having some IP cover is better than none and these policies can be great value for those on a tight budget. Income protection is a complex product and anyone buying it should seek financial advice.”