Income protection exists and is priced on the premise that the insured will generally receive a maximum of 75% of their income while on claim. Providing a benefit greater than this presents problems at claim time, with claimants being much less willing to return to work if they are able. Similarly, if the insured can receive 75% of their income from an insurer while on claim and still receive income from their business, the incentive to return to work (in many cases) is reduced. This results in greater risk for the insurer and increased insurance premiums for policyholders.

Some insurers can have an “Ongoing Business Income Clause” in their standard policy wording. This enables claims assessors to reduce the monthly benefit payable if the insured is receiving other income at the time of claim, which when added to the monthly benefit payable by the insurer, exceeds 75% of the insured’s income. It is therefore important that the business’s ongoing income, in the event of disability, is assessed when applying for income protection insurance.

Businesses are rarely the same, and even if similar there may be variations in regards to ownership, number of employees, types and numbers of contracts etc. We cannot know the impact on business income if the insured becomes disabled for each and every situation and therefore cannot put forward one rule that fits all.

Ways to mitigate the issues can be one or a combination of these options:

1) Policy structure options like varied waiting periods, benefit periods or lower than maximum benefit amounts. This helps to safeguard the insured against paying for cover or features they may not receive or be entitled to. It also helps the insurer mitigate risk in some business scenarios where income may continue for a limited period of time.

2) Applying the “Ongoing Business Income Clause” at underwriting stage. This helps the insured in that they can cover more of their income after a shorter waiting period and if the business income has stopped earlier than thought; the monthly benefit amount insured is higher and will be paid in full as there is nil income to offset.

Businesses with ongoing business income may include any business where the size or structure would remain an ongoing concern for a period of time longer than six months if the insured was not there. In summary, any business where the type of income flow, contracts, number of staff and their respective roles would lead to business income continuing in the event of the principal being unable to work.

There is never one solution for these situations. Elston Assure risk advisers have a number of strategies to best handle each client’s personal circumstances and should ensure a tailored insurance solution to provide greater certainty in this area.