Analysis: Individual income protection - the ADL debate

“Where affordability is a client concern, our approach to occupation classes three and four allows the client to have some own occupation coverage whilst keeping within their budget,” says Alison Manning, Legal & General’s product manager – individual protection. “At L&G we feel we offer a balanced solution whereby all occupations are offered a minimum of 12 months own occupation definition. Occupation classes one and two remain on own definition but threes and fours, our more risky occupations, are offered the switch definition to activities after 12 months of own occupation. This approach has helped us keep the cost of cover for occupations three and four more affordable.”

Some would argue that an IP plan with ADLs is better than nothing, but advisers believe consumers should be given more choice than this. Matt Morris, senior policy adviser at LifeSearch, says clients should be offered own occupation first and if the premium is prohibitive they can then opt for ADLs. “It should not be a case of ADLs or nothing,” he says. What’s more, with friendly societies offering terms to all but the most high risk occupations, it is very unusual for ADLs to be the only option available.

“Friendly societies don’t differentiate between low and high risk applicants but they still offer affordable plans,” says Alan Lakey, senior partner at IFA firm Highclere Financial Services. “As a result they get a higher share of high risks and I do have to be cautious, but I will still use them for some clients in low risk occupations because it makes sense for them.”

If insurers want to avoid losing business to friendly societies and improve the reputation of IP, a move away from ADLs seems to be a logical and necessary step forward.

A typical ADL

Legal & General requires claimants to be unable to perform at least three of the following six activities:

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