Who offers Hospitalisation benefits on Income Protection?
Spending a prolonged amount of time in hospital can have financial impacts on clients and their families not related to loss of income. Whilst Income Protection plans are designed to subsidise a loss of income due to illness or injury, the deferred period often means that the immediate costs of hospitalisation for the family have to be borne before any payment is received.
Hospitalisation benefits provided by AIG, Aviva, Royal London, Zurich (select only) and Legal & General are designed to ease such financial concerns by providing a pay out if the life assured is hospitalised for an extended period of time within their deferred period.
The payments can be used in any way the client requires, but can be of great assistance in helping both the life assured and their family meet the costs of being hospitalised such as;
- Hospital parking
- Travel to and from the hospital
- Hotel stays
- Unpaid leave from work
Whilst not all of these costs are likely to apply to any one person, each of them could lead to increasing costs being placed on the life assured and family which could be eased if hospitalisation benefit was included in their Income Protection plan.
For a successful claim to be made the life assured needs to have spent a number of successive nights within a hospital, after which the insurer will pay a set amount for each subsequent night they remain hospitalised. Legal & General and Zurich require the life assured to have spent 7 consecutive nights in hospital, however AIG, Aviva and Royal London offer slightly better terms and will start payments after 6 consecutive nights.
In the case of AIG, Aviva, Royal London and Zurich the hospitalisation payment is a flat amount of £100.00 per night. In comparison, Legal & General will pay one thirtieth (1/30) of the monthly benefit.
In real terms, this means that any client with a sum assured of up to £3,000 per month would be better off if they took out an AIG, Aviva, Royal London or Zurich plan. At £3,000 all four will pay the same, however where a client has a sum assured greater than £3,000 per month, that client would receive more from Legal & General with a cap on the amount they will pay per night at £150.
Each insurer will pay the hospitalisation benefit as a lump sum and the maximum they will pay is dependent on a number of factors:
- The length of the deferred period – As this benefit is only available during the deferred period it will cease if and when the deferred period ends and the plan goes into full payment.
- The client being discharged from hospital – If the client is discharged from hospital then each insurer will cease the hospitalisation benefit. If they are required to subsequently return to hospital at a later date the benefit can start again after the initial period of consecutive time spent in hospital is completed.
- The period of time defined by the insurer – AIG, Aviva, Royal London and Zurich will pay the hospitalisation benefit for 90 nights, whilst Legal & General go one night further by ceasing payments after 91 nights.
AIG and Aviva do not apply any exclusions to their hospitalisation benefit whereas Royal London apply an exclusion if hospitalisation is due to intentional self-inflicted injury. Legal & General and Zurich on the other hand apply exclusions as a direct result of either alcohol or drug abuse, both of which are standard exclusions for their Income Protection plan overall.
Whilst the hospitalisation benefit is provided with the aim of helping clients meet the costs of being hospitalised, it can also help inform insurers of the client’s condition sooner. This can allow the insurer to be proactive in offering other non-financial benefits they may provide (such as occupational therapy, physiotherapy or other complimentary therapies) to help the client return to work faster. These are frequently referred to as early intervention services.
In many cases this may mean the client can return to work before the end of the deferred period. An early return to work can significantly reduce the long-term impact of an absence on an individual’s career. While this can reduce the cost of claims to insurers this will normally involve some expense, the important thing from the client point of view however is that they can return to work sooner and reduce their career disruption. In 2015 80% of mental health absences reported to Legal & General resulted in a return to work before becoming a claim as a result of early treatment. Whilst it may not be suitable for all clients, for others it may help reduce financial stress in a period when Income Protection plans generally offer little financial support.
Each provider offering hospitalisation benefit have different benefits and overall each proposition seems strong in different areas. For clients with higher benefit amounts Legal & General may pay more on a day to day basis, however the shorter waiting period offered by AIG, Aviva and Royal London means that a client would be required to have an extended period in hospital in order to receive more overall.
Data at a glance