The Minimum Benefit Guarantee – A Safety net for Income Protection plans

Changes in working patterns is causing greater fluctuations in individuals’ income during their careers. Workers are increasingly making career moves or switching to part-time roles as they grow older, which could see their income level fall. As well as changing working patterns many people, and particularly self employed clients, may be working less hours or earning less as COVID-19 and self isolation takes its toll. These reductions in income can put workers and their families at risk as they will likely reduce the benefits payable under their Income Protection plans. Minimum benefit guarantees may provide a safety net for those with reduced income and in this insight we explore some of the key differences in how insurers offer this benefit.

For most plans, the benefit amount paid is financially underwritten at point of claim whereby the insurer will ask the client to provide evidence of their earnings and an assessment will be made on the level of benefit provided. If at such a time the client is earning less than they did at point of application then the benefit amount will be reduced accordingly. A minimum benefit guarantee essentially provides a minimum benefit that will be paid to the client if they are working a set number of hours at point of claim but their income is less than what it was at the outset of the policy.

The Exeter’s minimum benefit guarantee is provided at an additional cost. This enables clients to fix their benefit to a chosen level, up to a maximum of £1,000 per month. Clients will need to provide evidence that for the three months before claim, they were working 30+ hours per week and earning at least national minimum wage. This benefit can be paid for a maximum of 2 years.

Other providers offer a fixed Minimum Benefit Guarantee at no extra cost. If the benefit normally payable based on the client’s earnings at point of claim but falls below this amount, the minimum benefit amount is paid instead. If the initial cover amount is less than than the minimum benefit guarantee, they will pay the initial cover amount.

The graph below shows the amounts which providers offer as the guaranteed amount. As the graph shows, Legal & General, LV=, Royal London and Zurich offer more generous terms for those who work as doctors or surgeons (see our previous insight on this here).

To be eligible for the guarantee, most providers require the claimant to be working for a specified number of hours per week. This means that those that have lost their job due to COVID-19 are unlikely to be covered under the minimum benefit guarantee unless and are reliant on insurer leniancy. The requirements  for the number of hours a client is required to have been working immediately prior to their incapacity differs across insurers with some having different levels for employes and self employed clients. Those that offer an enhanced minimum benefit guarantee for the medical profession may alos have different requirements in terims of the minimum number of hours worked.

*Royal London does not require a claimant to be working in order for the guarantee to apply. However, if the claimant is working less than 16 hours per week they will need to meet Royal London’s serious illness or everyday tasks definition of incapacity for the benefit to be paid.

Overall, AIG, Aviva, Legal & General and Zurich are particularly strong as they only require the client to be working a minimum of 16 hours immediately before incapacity in order to qualify for the minimum benefit guarantee. Royal London have no minimum working hour requirement however require the client to meet their serious illness or everyday tasks definition if working less than 16 hours.