Beware when buying income protection online

We all love price comparison sites – but they can let you down when you’re looking for suitable income protection. The biggest price comparison sites risk misdirecting visitors to unsuitable PPI cover or policies that offer only ‘suited occupation’ cover, says Tom Conner of Drewberry.

More and more consumers are waking up to the need for income protection cover – this is good. However, the surge in popularity of price comparison sites presents a hidden risk, which may misdirect a good many Britons into buying inferior or unsuitable cover.

No-one would argue that price comparison sites haven’t been good for consumers, especially with relatively simple products such as car and house insurance, loans, credit cards, broadband or even energy tariffs. But the jury’s still out as to whether such sites can be as effective when it comes to choosing the right income protection.

Such ‘quote engines’ can also give quite the wrong impression about the cover that’s actually being offered. This is because comparison sites don’t consider the individual underwriting that’s required. This may be fine with car and house insurance (as basic details of the applicant and property will usually suffice) but it isn’t the case with income protection, which naturally requires some degree of medical underwriting.

The upshot is that many, many online shoppers find that, after conducting their search, they can’t actually buy the cover they’ve been quoted when they come to apply. When an insurer comes to consider a ‘real life’ person (rather than a virtual one) they’ll inevitably be forced to exclude some existing medical conditions, ‘load’ the premiums or even decline cover altogether.

Why price comparison doesn't work for protection

All this makes it very difficult for the average consumer to tell what is really on offer. The most damaging outcome may be the number of people who go on to buy income protection on a ‘suited occupation’ basis. What this means is that the policy only pays out if the claimant is not only unable to perform their own job, but also any other occupation to which their insurer believes they may be ‘suited’.

As you might expect, some (but not all) of the larger comparison sites provide a box which highlights whether a policy covers your ‘own occupation’ or just a ‘suited one’. But no one could accuse them of making clear just how important this differentiation can be.

Why 'suited occuptation' cover is so different from 'own occupation' cover

Essentially, income protection that’s based on the ‘own occupation’ definition will pay out whenever anything renders the holder medically unable to do their specific job and the day-to-day duties it entails. This can be anything from stress or back pain – the two most commonly paid out claims – right through to life-threatening conditions such as cancer, heart attack or stroke.

The difference with ‘suited occupation’ cover is that, when it comes to the crunch, the insurer has the right to ask them to find another job that they could reasonably perform based on their skills, experience and remaining capabilities.

Imagine a pilot who’s forced to retire due to failing eyesight. His insurer might then tell him that, despite his impairment, he could still find work as a navigation teacher. Or picture a senior executive who succumbs to the high stress of his role, who is told he could still find work as a ‘stress-free’ entry level employee. A holder of such cover might feel themselves to be in an impossible dilemma.

‘Suited occupation’ policies are even less enticing for those with manual jobs. There are a whole host of injuries that may disqualify these workers from hard manual labour, but which wouldn’t keep them from sitting at a desk.

That’s why a decent adviser will always recommend ‘own occupation’ cover. After all, it’s what most people actually need: a policy that protects them against the risk they can’t do their own job. They don’t want to be handed, instead of a payout, a list of ‘less demanding’ roles that their insurer considers them still capable of performing.

Drewberry offers an income protection occupation definition calculator. Anyone considering cover can input details of their occupation and find out how likely insurers are to offer them ‘own occupation’ cover. This can help you avoid the pitfalls of a lesser occupation definition.

Comparing the price comparison sites

In a recent mystery shopper exercise, we found that when asked to quote on income protection for a middle-aged marketing manager, three major comparison sites offered identical results: a total of 31 quotes from 10 insurers with no less than 14 of these based on a ‘suited occupation’ definition.

Interestingly, very few of the quotes provided actually offered the extent of cover requested. This highlights how most insurers, including the dozen or so online brands that specialise in ‘suited occupation’ products, are clearly targeting the lower- to mid-earnings bracket. Indeed, there are very few insurers willing to provide online quotations for visitors who earn £70,000 or above.

The risk of premium bias

Naturally, ‘suited occupation’ policies tend to be at the cheaper end of the table, as they pay out only a fraction of what ‘own occupation’ policies pay. But without proper guidance for the consumer, there’s a real risk of people gravitating towards the cheapest premium, and of never realising their error until they come to make a claim.

If these and the numerous smaller sites that emulate them were genuinely interested in connecting their visitors to the most suitable cover, they would display ‘own’ and ‘suited’ occupation policies separately. Displaying them side-by-side only results in confusion – and perhaps they realise this.

Much the same can be said when it comes to the other great online risk facing income protection shoppers: the risk that they end up buying a repackaged PPI product.

Avoiding another 'PPI-style' misselling scandal

Payment protection insurance (PPI) has been at the centre of customer complaints ever since it became available in the 1990s. The opportunity to sell a lucrative but poorly understood insurance policy (that was unlikely ever to pay out) as a rider on loans and mortgages proved too tempting for Britain’s high street banks to ignore. To cut a long story short, compensation claiming for PPI became a multi-billion pound industry in itself.

Despite this notorious misselling scandal, there’s still a market for reliable insurance that protects loan repayments or other fixed costs. Unfortunately, by introducing the concept of short-term income protection (STIP), the FCA has only muddied the water. The result is a new generation of PPI policies that are variously labelled as STIPs or just income protection. (They all carefully avoid the term PPI.)

This would be fine if online consumers were aware of the differences between the two types of policy, but this isn’t the case. A Drewberry survey found that only 17 per cent of people knew that income protection only covers accident and sickness, with the majority of people thinking it also covered unemployment, which is a key feature of PPI plans.

Today’s online comparison sites do little to ease the problem. We found that one comparison site was really off the mark. Under the heading of ‘income protection’ it produced 10 quotes for PPI-style products from just two insurers. Meanwhile, another comparison site produced just six quotes, all for PPI-style products with monthly benefits capped at just £2,000.

Better safe than sorry

The risk of online income protection customers being diverted into either ‘suited occupation’ or redressed PPI products is quite real, due to the numbers of UK consumers using price comparison sites.

Comparison sites also lose ground when it comes to capturing the best of what’s on offer in a given sector. There are always special deals to be had, such as L&G’s free life cover for new parents, or the free death benefit and carer’s cover on British Friendly’s income protection policy – not to mention the best of the added extras.

Similarly, there’s also underwriting to consider. Every insurer has its own nuances, which means that advisers are generally in the best position to find the one that offers the best balance of price and cover.

As with most areas of insurance, it costs no more to buy income protection through an adviser than it does to buy via a comparison site. And of course, if you buy direct from a price comparison site and get the wrong type of cover for your needs, there’s no one to blame but yourself.

Tom Conner is a director of financial advisers Drewberry.