Stress and Income Protection 2024

Income protection is  a valuable insurance product. It can pay you a good amount of your gross salary if you are ill and unable to work. It’s quite common to protect about 65% of your pre tax earnings with an income protection policy.

If you are earning an income it really is worth considering income protection. Statutory sick pay is currently £109.40 per week for a maximum 28 weeks. That’s only £3,063.20 to live on for six and a half months!

We are big supporters of income protection but it’s important to know how it works with different people. There are some really important things to know about the way that stress and income protection mix together.

Let’s get straight into things. If you have a mental health history it’s very likely that you will have a mental health exclusion on a personal income protection policy. There aren’t always exclusions but it’s quite common to have one put on your policy if you have experienced stress, anxiety or depression in the past.

The two biggest claims areas for income protection are mental health and back pain. The insurers don’t like to insure against a risk that someone is already experiencing. This is because if they did it could cause significant financial difficulties for the insurer.

If we take an example of someone that is actively experiencing depression and needs to take a break from work due to their mental health. If the insurer gives this person an income protection policy without an exclusion, they could possibly claim on the policy straightaway without ever having paid any premiums. If lots of people did this the insurer would be paying out claims without having received any premiums, which would quickly put them in a negative financially. Most income protection policies pay out at least £1,000 per month of your income each month that you are ill, but the average premium is less than £40 per month. 

We are seeing some confusion in the insurance world about what stress is. When it comes to insurance applications stress is often seen as a disclosable health condition. This can potentially lead to a mental health exclusion on an income protection policy.

The really interesting thing is something that we are seeing at the claims stage sometimes.  We have seen some, not all, claims for stress related work absence turned down on income protection policies. When we became aware of this we started speaking with insurers for some clarity on why this has been happening. The reason that we have been told so far is that stress is a symptom of mental health not a mental health condition in itself.

This seems strange to us. How can stress be a disclosable medical condition in an income protection application, with such relevance that it can lead to a mental health exclusion on an income protection policy, but then not be classed as a medical condition when it comes to a claim.

Please be assured that there are many successful claims made for income protection every year in the UK, with mental health being the highest reason for claims. There are many times that stress will be involved in a successful income protection claim, but there seems to be a bit of a grey area with some insurers that needs to be cleared up. 

We are working with the Protection Distributors Group to seek guidance for insurance advisers and consumers on the way that stress is viewed across the insurance market. Watch this space.