Income Protection FAQ – Exclusion Periods

It is important when reading these notes that it is understood that no specific policy is being discussed, but rather the typical terms and conditions operated by most insurers. Any policy you buy may have differing conditions and you should check your policy details to ensure you fully understand the terms of your policy.

 

By Bob Cook

All Income Protection policies that cover unemployment include something called an ‘Exclusion Period’ This period only applies when you first buy your new policy and based on the majority of policies currently available on the market, the typical length of the exclusion period is 120 days. Some policies may have a longer exclusion period and others shorter.

Using the example exclusion period of 120 days above. In the first 120 days after buying the policy and unemployment that occurs during the 120 days, or if you become aware during the 120 day period that your job is at risk then if you subsequently do lose your job you would not be eligible to claim. This would be the case even if the redundancy occurs after the 120 day exclusion period has expired. If the event, or notice of the event occurs in the exclusion period, you are not covered.

There is typically no exclusion period for accident and sickness claims, and the unemployment exclusion only occurs at the start of the policy. Once the exclusion period has expired, and nothing has occurred during the exclusion period to indicate your job is at risk, then you are fully covered.

Any policy that covers any form of unemployment or redundancy will have an exclusion period no matter what you call the policy e.g. Income Protection, Redundancy Insurance, Accident Sickness & Unemployment Insurance (ASU), Mortgage Payment Protection Insurance (MPPI) etc.

In the case of Mortgage Payment Protection Insurance if you are buying the cover at the same time you are taking out a new mortgage or re-mortgage, the insurer may reduce the exclusion period or even waive it completely.

It is important to understand that these exclusion periods are vital if long term policy holders and insurers are to be treated fairly. Nobody likes the idea of paying for something they do not need.  If it was possible to know exactly when your home was going to catch fire, then nobody would buy buildings and contents insurance until the month when the fire was due to occur. Likewise if people don’t buy redundancy insurance until they have a genuine concern their job is at risk they could receive thousands of pounds of benefit from a policy while only paying a few pounds in premiums.

Large numbers people have held redundancy insurance policies for many years. They bought the cover because they are thoughtful individuals who had no specific concern of redundancy when buying the policy, but understand the importance of the benefit. If other people could step in at the last hour and buy cover once potential redundancies were announced, claims would soar and the premium for long term policy holders would increase.

Exclusion periods may initially sound harsh, but as demonstrated above they are necessary and fair.