Fidelity Income Protection
Changes to the wording make it easier to issue policies, but advisers should be careful about proof of income.
Thursday, March 29th 2012, 9:14AM 7 Comments
by Graeme Lindsay
There is a trap for advisers in the definition of Monthly Benefit in Fidelity’s Indemnity Income Protection contract.
The problem arises where the cover is issued without financial evidence based on the applicant’s declaration of income. Fidelity will issue up to $120k per annum without evidence. So, if the applicant claims to be earning $100k, Fidelity will issue $75k, or $6,250 per month. At claim time, client is required to “substantiate the monthly benefit”, and Fidelity will only pay 75% of proven income at issue. So, if the client cannot substantiate what his/her declared income was at the time of commencement, the claim will be reduced and the client’s expectation will not be met.
Fidelity is doing nothing wrong – they’re trying to make it easier to issue a policy. The problem will arise if the applicant mis-states his/her income and Fidelity issues, based on the income declared in the application, but reduces the benefit at claim time.
Accordingly, so as to avoid being on the wrong end of a Professional Indemnity claim, we strongly recommend that advisers ask applicants to prove income at issue even though Fidelity don’t require proof.
Graeme Lindsay runs Strategy Financial which provides research to advisers on insurance products. The comments in "Strategy Thoughts" outlines his view on recent product and policy changes.
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