Protection Guru: Making Income Protection add up for teachers

After four months of home schooling during the Coronavirus lockdown, the pressure on teachers is mounting. Tasked with getting children safely back into school to catch up – thereby getting parents back into work to help the ailing British economy – there is a lot of extra weight on teachers who were already suffering from high workloads before the pandemic.

It is widely accepted that teaching is stressful profession. With stress being one of the top claims on income protection policies, putting a policy in place for clients who are teachers is a sensible course of action.

Just like everyone else, teachers can also become physically ill or have an accident leaving them unable to work, so the focus should not solely be on stress. However, finding IP for teachers is more complicated than sourcing cover for other professions because of the way their employer sick pay arrangements work.

When assessing clients’ income protection needs, advisers will chat to them about various things such as employer sick pay and any savings they may have.

As public sector employees, teachers’ sick pay is set out in a Conditions of Service book. There are three separate books – one for teachers in England and Wales, one for those in Northern Ireland and another for those in Scotland. While the arrangements are the same for teachers in England, Wales and Northern Ireland, those for Scotland are different.

It is important for advisers to check which version applies to their client, so they can understand their specific sick pay arrangements.

The amount of sick pay and how long it is paid for, as set out in the respective Conditions of Service, depends on length of service at the time the teacher goes off sick. The longer the length of service, the higher the payout, as can be seen from the table below:

Income protection plans should ideally kick in when the employer sick pay ends. As the point is to replace lost income where the teacher is unable to work through ill health, the two arrangements need to dovetail so as to avoid any gaps in which the client would receive no income.

However, this can be difficult for advisers to achieve because in England, Wales and Northern Ireland, teachers sick pay is based on the days off work a teacher has taken due to illness. Most employers – and so most income protection plans – will be based on weeks or months.

Income protection is also traditionally designed around static deferred periods. A deferred period is the length of time policyholders need to wait before their policy will pay out when they claim and they are usually run from one day to 12 months.

The problem is that it is not easy to match these deferred periods to sick pay arrangements that vary with length of service. But if this is not achieved, there is a real risk of clients being left without an income. So, what does an adviser do?

While it is possible to buy a policy with a shorter deferred period, so the client doesn’t have a long wait for their benefit when they need to claim, this is more expensive than policies with longer waiting periods.

A more affordable option is for advisers to arrange cover with a split deferred period that matches the different levels of sick pay that teachers get – for example, 50 per cent of benefit for one month which will reduce the following month.

Another option is to find an insurer with bespoke deferred periods for teachers, but choice is limited. There are currently just two insurers, LV= and Vitality, that pay out using a similar structure to teachers’ sick pay arrangements.

Payouts are expressed as 50 per cent or 100 per cent of monthly benefit, matching the full pay and half pay teachers get from their sick pay arrangements. Payouts also replicate the regional differences in the sick pay arrangements, with deferred periods based on working days for teachers in England, Wales and Northern Ireland and months for teachers in Scotland.

To qualify for these bespoke terms, clients’ sick pay arrangements must fall under the relevant Conditions of Service for teachers in the relevant part of the country and they must also choose a 12-month deferred period. If they choose any other deferred period, the bespoke terms will not apply.

Teachers who qualify will be paid as early as possible in the event of a valid claim, depending on length of service at the time the client becomes unable to work. It means even though a 12-month deferred period is selected, in practice teachers who qualify for the bespoke terms will not have to wait that long.

Comparing the deferred periods LV= and Vitality offer for the various length of service bands across the UK, the insurers are virtually identical. The only difference is that for teachers in England, Wales and Northern Ireland, LV= pays 50 per cent of monthly benefit after 25 working days where teachers have between four and 12 months’ service. With Vitality, the waiting period is double that at 50 working days.

It is worth noting that if a client moves out of the public sector – to take a teaching post an independent school, for example – they will become ineligible for these bespoke terms with both plans, so advisers will need to keep up-to-date with any changes in their clients’ employment.