Page 13 of Chapter 27 Why do policyholders not have to inform the insurer if their regular employment income rises? Core reading answer says thay """ if level of income rises, insurer is at no harm following a claim, since benefit actually paid will now be well below the maximum benefit level""" In my view this line is wrong. For ex: policy is 50% of Gross Income...Initially Mr.A salary is 100, so max benefit eligibility is 50 pound. But now his salary increases to 120. Hence max benefit limit will also shoot up to 60. Please let me know what am i missing ?
Hi Kamal I think you are confusing individual and group income protection policies. The Core Reading you are quoting refers to individual income protection. Let's say that individual IP has a maximum replacement ratio of 50%. Mr A might buy 40 of cover. This would be ok as it is less than 50% of salary. If Mr A gets a pay rise then he is even further beneath the maximum replacement ratio. Either way he gets 40 if he claims. The risk is actually of falling salary. If Mr A's salary fell below 80 then his cover would be above the maximum replacement ratio. For group income protection then the benefit level may well be 50% of salary. However, the employer will need to increase its premiums directly in line with any pay increases. Similarly the employer will need to adjust its premium if staff join or leave the company. As staff and salary changes are common place then procedures will be in place to capture this information. Best wishes Mark
