Income Protection decreasing cover?

[PhamThinhLe]

Hello, it seems to me that income protection business basically has decreasing cover as the monthly benefit will usually only last until the policy end date (so for example at the start of the last policy year, maximum payable benefit will be just one year minus waiting period). Does this mean this business has an issue with persistency towards the later years like decreasing term business?

Thanks for any replies.

 

[Em Francis]

Hello, it seems to me that income protection business basically has decreasing cover as the monthly benefit will usually only last until the policy end date (so for example at the start of the last policy year, maximum payable benefit will be just one year minus waiting period). Does this mean this business has an issue with persistency towards the later years like decreasing term business?

Thanks for any replies.

In theory, yes there could be a persistency risk towards the end of the term of the policy. But in practice, I don't think this is seen. Policyholders would see the policy as protection if they were to become ill or have an accident and they may even value this more as they get older and hence are more susceptible to ailments.

 

[mugono]

To add to Ems comments, it’s also worth saying that the material purchasers of IP are companies (Group IP).

Companies need a stable source of working age employees and you may find that the average company age profile is fairly stable.

In addition, GIP (and other benefits) will be an attractive benefit for many and companies who don’t offer such benefits could be the victim of selection.