IP Replacement Ratios – Horses for Courses?


Would you recommend a product with a 50% replacement ratio if it means more affordable IP premiums?

Mixed results coming from our latest poll suggest there exists a possible case for the introduction of a 50% replacement ratio in the next generation of income protection insurance products soon to be launched.

With a glass half-full approach to the results so far, more than a third of advisers (37%) have said they would recommend a 50% income replacement IP product to their clients if this will allow them to deliver a more affordable solution, while around one in five (19%) are presently unsure.

At the same time, however, 44% say they would not offer a 50% income replacement solution, thereby delivering a balanced outcome to this conversation so far.

Perhaps this comment we received from one adviser encapsulates the reason for this mixed result, namely that a 50% replacement ratio is neither right nor wrong, but rather represents a response that suggests a ‘horses for courses’ approach to this proposition is the way to go:

This is not a question to which there is a yes/no answer…

“This is not a question to which there is a yes/no answer. Every client situation is different and therefore, it depends on the overall circumstances. For one client it may be a good solution to lower premiums whilst for another with high outgoings and without assets/savings to carry them through their time off work, it may be less than ideal.”

We’re at pains to point out there are many potential changes that can be made when it comes to solutions that will contribute to greater affordability and sustainability for income protection insurance, such as limited duration contracts, reduced or limited benefit periods, increased waiting periods, revised definitions, less built-in features etc, and we will report developments as they unfold.

In the meantime, as we consider the income replacement ratio proposition, do you think the idea of a 50% income replacement ratio is out of the question? Should it at least be offered as an option, depending on the individual client’s circumstances? Should 75% replacement be removed as an option in future? Our poll remains open for another week and we welcome your thoughts…