Can I return to work and still claim income protection benefit?
In this blog, we explore proportionate benefit.
Returning to work after a period of incapacity can be a daunting prospect. If the absence has been over a long period, the return to work may be part of a phased plan where you re-enter the workforce on a part-time basis. There is also the possibility that you may not be able to return to the same role you were in previously.
There is a good chance that a return to work on this basis may not bring in as much income compared to your pre-incapacity income.
How do income protection insurers approach these scenarios?
They use proportionate benefits
What are proportionate benefits?
Proportionate benefit means that following a claim if the policyholder returns to work in a different job or for a lower income as a direct result of the illness or incapacity. An appropriately reduced monthly benefit will continue to be paid by many insurers. This is not the case for all policies though, so it is important to speak with an expert to find the right plan for you that does.
There are a number of reasons why returning to work on a different basis might occur and some examples of this could be:
- The person is unable to return to their previous role due to ongoing physical or mental issues but can return to the workforce in an alternative position in which less income is earned
- There may be a phased return to work where the person initially returns either part-time or with reduced duties (and is therefore earning less)
- Maybe the person is unable to return to their previous employer due to environmental or mental health reasons and earns less with their new employer
Calculations can be complex but simply put…
As the recovering person’s income increases, insurers will decrease the amount of benefit paid. They will consider, the amount their company are paying them and their overall new salary to do this fairly.
Some people may be able to return to their pre incapacity earnings relative quickly, Where this takes time, it is important that the proportionate benefits are paid to ensure the policyholder can cover their essential outgoings.
Where a short-term income protection plan is in place ( benefit payment is only paid for a set period of 1, 2, or 5 years) this will continue until the end of the agreed benefit payment period.
Some insurers might apply a maximum timeframe they will pay proportionate benefits for. Your adviser will be able to do the research on your behalf.
Are proportionate benefits important?
Proportionate benefits are an important part of all income protection plans. They ensure that policyholders are able to return to work in a reduced capacity. Or, an alternative career and that they are not penalised financially for doing so. A phased return to work can be an important element in recovery especially as returning to full-time work may negatively impact on health and well being. This benefit can help limit this risk.
Source: Protection Guru Dec 2020
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