Increase or eliminate the limit for age eligibility for income protection?
Making Sense of Outdated Age Limits on Income Protection Policies
Discussions are now centered around the "outdated" age caps on income protection plans, which might leave older workers and entrepreneurs vulnerable to financial risks.
Currently, the maximum age to secure most income protection policies is 59, but the coverage can continue until 70. However, insurance brokers argue that these age restrictions are outdated, given the rising state pension age and the need for people to work longer to afford their retirement.
The growing number of over-60s self-employed, backed by data from the Office for National Statistics (ONS), coupled with longer mortgage terms, underscores the requirement for income protection policies to align with these changes. However, older individuals running their own businesses would technically be rejected for income protection from 59, leaving them unprotected if they become ill and can no longer work.
Rob Peters, principal at Simple Fast Mortgages, expressed his concern, stating, "This is outdated, and the industry needs to wake up. We're telling people to work longer, pay tax longer, take mortgages later, but we don't give them the tools to protect their income at the very time they may need it most."
Income protection left older people exposed, warns Joe Farmer, a protection adviser at When The Bank Says No. He said, "We speak to clients every day who are working well into their 60s, some even into their 70s, and many of them are still financially responsible for things like mortgages or supporting family."
With the increasing state pension age and longer working lives, the industry needs to address this issue and provide more attention to income protection policies.
So, what is income protection? It's an insurance product that supports you financially if you're unable to work due to illness or injury. Payouts usually range from 50% to 70% of your salary and last until your return to work. The premium, which depends on your age and other factors, is higher the older you are as insurers perceive higher risks.
This maximum age limit of 59 appears outdated compared to the current state pension age of 66 and rising. The ONS data reveals that the number of self-employed individuals aged 60 and above hit a record 991,432 in 2023. Furthermore, more people are now taking out mortgages that extend into retirement to manage higher interest rates.
In summation, the industry needs to reassess the age limit for income protection and create policies that accommodate modern working practices, longer working lives, and an aging workforce. This calls for innovation in the insurance sector, keeping in mind factors like health, working lives, financial responsibilities, and risk assessment.
- The age limit for income protection at 59 seems outdated when considering the current state pension age of 66 and above, especially as the number of self-employed individuals aged 60 and over continues to rise.
- As more people are taking out mortgages that extend into retirement to manage higher interest rates, the necessity for income protection policies that align with changing financial responsibilities becomes increasingly crucial for older working individuals.
- Given the trend of people working longer due to factors such as rising state pension ages and longer mortgage terms, the insurance industry should prioritize updating income protection policies to cater to the evolving needs of the aging workforce and modern working practices, ensuring financial protection for everyone.
