1 Protection Friends Life Protection Account Key features of Income Protection Cover Why is this document important? The Financial Services Authority is the independent financial services regulator. It requires us, Friends Life Company Ltd, to give you this important information to help you to decide whether the Friends Life Protection Account s Income Protection Cover is right for you. You must read this document carefully so that you understand what you are buying, and then keep it safe for future reference. The purpose of this document is to help you make an informed decision. This document introduces you to the key features, benefits and risks of Income Protection Cover. Where relevant information is contained in other documents these will be signposted at the appropriate point. Full terms and conditions can be found in your Account pack. This will be sent to you when your cover starts. If you would like a sample Account pack, please ask your financial adviser. You need to be comfortable that you understand the benefits and risks before deciding to take cover out. You should also speak to a financial adviser before making any decisions about this cover. What other documents should I read? It s important you read this document with: Your Quotation summary The Key features of the Friends Life Protection Account The Key features of Payment Protection Cover You should contact your financial adviser if you need copies of these or any of the other documents mentioned in this document.
2 Income Protection Cover Its aims, your commitment and risk factors What is Income Protection Cover? Income Protection Cover is insurance that pays out a regular monthly benefit after the end of the deferred period chosen, if the person covered suffers a loss of income because they are unable to work for an extended period of time due to incapacity caused by an illness or injury. We measure the incapacity according to the definition of incapacity for the person covered, shown in their Account pack. The person covered must prove they are unable to perform the essential duties of their occupation or a number of the specified activities listed within their definition, to a minimal level, without the help of someone else. They must not be working in any other occupation. In all cases, their inability to perform essential duties or an activity must be the result of an illness or injury. Should I consider taking out Income Protection Cover? You should consider taking out Income Protection Cover if you: are employed, self-employed or a house person*, need to protect your earnings, want cover for five years or more, providing that cover ends on or before your th birthday, live in the UK, and are aged between and 9 when cover starts. * A house person is a person covered who works for less than hours a week or doesn t earn any money. Its aims To pay out a regular monthly benefit if before the cover end date the person covered: meets the definition of incapacity for longer than the deferred period, caused by illness or injury; and suffers a loss of earnings. The deferred period is the continuous period between the person covered becoming unable to work due to incapacity caused by an illness or injury and the date we would start paying a claim (see How does Income Protection Cover work? on page ). Your commitment You must: provide full and true answers to the best of your knowledge when applying. If you do not the insurance may not protect you in the event of a claim, tell us about any changes to health, family history, occupation, travel or pursuits that occur between completing the application and your cover start date. Please contact your financial adviser or phone us on 9. We are open am to pm, Monday to Friday, make regular payments to us when they are due, give full and true answers in the event of a claim, make sure you are aware of and understand any exclusions and restrictions that may apply. These can be found in your Account pack. inform us of a claim within your notification period (see When do I need to tell Friends Life about a claim? on page ), give us information regularly about your illness or injury during the period of your claim.
3 Risks Acceptance of your application is not automatic. When you apply we assess the risk of providing you with the cover you have applied for based on your health, family history, occupation, travel and pursuits. This is known as underwriting. If we are unable to offer you cover on our standard terms, we will contact you to explain the terms we can offer or the reasons why we cannot cover you. If you fail to meet the commitments described in Your commitment it may result in a claim not being paid. If you ask us to increase the amount or extend the length of your cover after it starts, we may need up to date underwriting information. If this information has changed since you applied and increases our risk of providing cover to you we may: not allow the change to happen, limit the change, increase the payment to us, or add an exclusion. The cover may be less than you need if you do not review it regularly to keep it in line with your earnings. It is important that you do not take out too much cover because there are maximums that apply to the amounts we can pay if you claim. If you have taken out and pay for more cover than you need you will not receive a refund of any payments you have made to us. Please see How much Income Protection Cover do I need? on page for further details. A claim may end if you move outside of a range of countries (that we call permitted countries) that are shown on page. Claims paid under Income Protection Cover may affect your entitlement to some means-tested State benefits but not your entitlement to benefits from the State for incapacity. The rules relating to claims for State benefits may change. Any benefit we pay could affect your claims for other Income Protection Cover you may have or that your employer may provide for you. Over time, the effect of inflation could reduce the value of your amount of cover. Put simply, what your amount of cover could pay for in the future may be less than what it could pay for today. If you choose cover on a reviewable basis, you may need to increase your payments to us in the future. See page for further details. Regular reviews with an authorised and regulated financial adviser can help you to ensure that your cover continues to meet your needs.
4 Questions and answers about Income Protection Cover How does Income Protection Cover work? Income Protection Cover pays out a regular monthly benefit. Benefits are paid if during the length of your cover, you become unable to work for longer than your chosen deferred period due to incapacity caused by an illness or injury. The deferred period is the continuous amount of time you must wait between meeting the definition of incapacity and before the benefit starts under your Income Protection Cover. You choose the amount of time you wish to wait, the options available are: weeks weeks weeks weeks weeks weeks The longer your deferred period, the less you will pay for your cover. The deferred period does not apply if you need to claim again for the same cause within months of returning to work, subject to terms and conditions. Restrictions may apply to the length of deferred period available for some occupations. The cover will pay out when you meet our definition of incapacity and your selected deferred period has ended and will continue to be paid for as long as the claim is valid. Cover is provided until the end of the cover period regardless of how many claims are made. You should continue to make your payments to us until we accept your claim. It is possible to change the deferred period once cover has started, subject to the terms and conditions in force at the time of the change. If you want to reduce the deferred period, we will need to collect new underwriting information. If you and your partner require protection then you will each need a separate cover. How much Income Protection Cover do I need? Your financial adviser can help you work out the right amount of cover to take out and regular reviews with them will ensure that your cover continues to meet your needs. You will not need as much cover as your earnings because under current tax rules benefits are paid tax free. It is important that you do not take out too much cover because there are maximums that apply to the amount of benefit we can pay if you claim, these are: % of the first, of your earnings per month; plus % of any earnings over, per month. The maximum benefit payable is, per month. If you are not in full-time employment immediately before your claim we will not pay more than, per month. The maximum payment will be reduced by: any income, payment or waived premium from any other insurance policy which pays out while you are unable to work, any pension income received since the start of your incapacity, any ongoing income you receive from your employer or business, and any benefits you receive from the State for incapacity. We don t deduct the value of any investment income you receive from your claim. If you take out and pay for more cover than you need, or your earnings fall you may not receive the full amount of cover that you have paid for. If there is a shortfall we will not refund any payments you have made to us. Any dividends you receive as both a shareholder and an active employee of a private limited company may also be taken into consideration as earnings. Your maximum regular benefit amount, if you claim, would be recalculated on the level of your earnings before you were unable to work.
5 What is meant by earnings? If you are employed, we will class the following as your earnings: your pre-tax earnings for PAYE assessment purposes, shown on your HM Revenue and Customs P form, and any benefits in kind you would lose averaged over the previous three years. If your normal income from your occupation includes company dividends, these may be included as part of your normal earnings if: the dividends stop because of illness or disability you are an active employee of the company. If you are self-employed, we will class the following as your earnings: your average taxable income after the deduction of business expenditure allowed by HM Revenue and Customs over the previous three complete financial years (i.e. net profit). If the business has been running for less than three complete financial years, we will work out the average taxable income during the period the business has been running for. Any income received from savings or investments are not taken into account regardless of whether you are employed or self-employed. Do I need to tell you if I change my occupation? You only need to tell us if your occupation changes between completing your application form and the start of your cover. After your cover starts, you do not need to tell us if you change your occupation. However, if you move to a less hazardous occupation you may wish to tell us as this could result in your payments to us being reduced. Some additional conditions apply if you are not working and need to make a claim. These are explained in detail in your Account pack. If your salary increases or decreases, you may wish to amend your amount of cover. Your financial adviser will be able to help you apply for this. You may be asked to provide new underwriting information. When do I need to tell Friends Life about a claim? If you become unable to work you need to tell us within the following notification periods: two weeks if your deferred period is four weeks, four weeks if your deferred period is eight weeks, or eight weeks for any other deferred period. If you do not tell us within these time periods we may: extend the deferred period by the length of the delay, or refuse to pay your claim. How will you assess my claim? We will ask for evidence to assess your claim against the definition of incapacity shown in your Account pack. We will not pay any benefits until we have received the evidence we have requested. Your claim will be paid providing you: meet the definition of incapacity, suffer a loss of earnings; and are not doing any other work. Is there a limit to the number of times I can claim? No. You may claim for any number of separate episodes of incapacity you experience during the length of your cover. Providing you meet all of the terms and conditions the regular monthly benefit will be paid.
6 Questions and answers about Income Protection Cover How is benefit paid and when does it end? Your claim will be paid monthly in arrears until the first of the following happens: your cover ends, you no longer meet our definition of incapacity, you no longer suffer loss of income, you retire, you die, or you become resident outside any of the permitted countries for longer than months. Permitted countries The permitted countries are Andorra, Australia, Austria, Belgium, Bulgaria, Canada, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hong Kong, Hungary, Iceland, Isle of Man, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, The Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Ireland, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States of America. Does Income Protection Cover include anything else? Yes, Income Protection Cover also includes: Hospitalisation Cover Hospitalisation Cover pays a regular income for up to weeks if you are confined to hospital for six or more consecutive nights during your deferred period. The amount paid is the daily equivalent of your cover up to a maximum of per night. Payments will stop when the deferred period ends. Rehabilitation Cover Rehabilitation Cover pays a regular monthly income for up to months if you return to your occupation immediately after making a valid income protection claim and your earnings are reduced as a direct result of any residual incapacity. Proportionate Cover Proportionate Cover pays a regular monthly income if you have to change your occupation immediately after making a valid income protection claim and find that your earnings are reduced as a direct result of any ongoing incapacity. Payment Protection Cover Payment Protection Cover is automatically included in your account when you take out Income Protection Cover. Payment Protection Cover will make payments on your behalf if you are unable to work due to illness or injury. You should continue to pay for all the covers in your account and your Account Fee until we accept your claim. Please read the Key features of Payment Protection Cover for a detailed explanation of what Payment Protection Cover is and how it works. When won t Income Protection Cover pay out? We will not pay a claim if the incapacity is directly or indirectly caused by: unreasonable failure to follow medical advice, an excluded cause shown on your cover schedule, alcohol or solvent abuse, the taking of drugs, except under the direction of a registered medical practitioner (this only applies to certain illnesses), intentional self-inflicted injury, normal pregnancy of the person covered, except where they are experiencing pregnancy complications, infection by any Human Immunodeficiency Virus (HIV), Acquired Immune Deficiency Syndrome (AIDS) or related complex unless covered by our eligible HIV claims definition; or if: medical or other evidence required by us is incomplete or inaccurate, you have been resident outside of any of the permitted countries for longer than months, you do not provide full and true answers to the best of your knowledge when you apply for cover or when you claim, or you don t tell us about changes to health, family history, occupation, travel or pursuits that occurred between completing the application and the cover start date.
7 9 9 Types of cover 9 9 What are the different types of cover and how do they work? When you take out Income Protection Cover there are two different types of cover you can choose. The type of cover affects the amount you pay to us and that which is paid if a claim is made. Level cover the amount that is payable in the event of a claim stays the same for the length of your cover. 9 9 With level cover, your payments stay the same, unless you change your Income Protection Cover or if your payment basis is Reviewable. Amount of cover ( ) This diagram illustrates increasing cover for different levels of RPI.** 9 9 Amount of monthly benefit ( ) % RPI % RPI % RPI 9 9 This diagram illustrates level cover.* Amount of monthly benefit ( ) 9 9 ** This diagram is for illustration purposes only and is based on an initial, of cover over a year term. The type of cover your financial adviser has recommended for you is shown on your Quotation summary. * This diagram is for illustration purposes only and is based on an initial, of cover over a year term. Increasing cover the amount that is payable in the event of a claim increases annually on the cover start date in line with the change in the Retail Prices Index (RPI), subject to a minimum change of % and a maximum of %. Increasing your amount of Income Protection Cover in this way can help compensate for the effect of inflation described in the Risks section on page. Amount of cover ( ) Amount of monthly benefit ( ) 9 9 Your payment will increase Term by (years). multiplied by the % increase in the amount of Income Protection Cover to pay for the increase. We will write to you in advance with details of your new amount of Income Protection Cover and your new payment amount. You can ask us to stop increasing your amount of Income Protection Cover on the anniversary of your Account start date, but if you later decide to increase them again we would need to collect new underwriting information from you. 9 9
8 Questions and answers about Income Protection Cover Payment and tax What is the payment basis for Income Protection Cover? The payment bases available with Income Protection Cover are Guaranteed and Reviewable. Guaranteed with Guaranteed payments, we won t apply any increases or decreases to your Payments to us if the cost of providing your account turns out to be more or less than we first estimated, unless you make any changes or select increasing cover. Reviewable with Reviewable payments, we may offer you a more affordable payment when cover starts. We calculate your payments to us using assumptions that cover the whole period of cover. These assumptions are the future number of claims, their timing and the cost of reinsurance. We will increase or reduce your payment if our view of these assumptions at the time of review has changed since outset or the last review. Your payments to us are reviewed on the fifth anniversary after your cover start date and every fifth anniversary after that. If our costs to provide the cover are higher than first estimated your payment may go up and if they are lower your payment may go down. However, if the change is within % either way your existing payment and cover will stay the same until the next review date unless you make any changes or select increasing cover. Please note there is no limit to the amount by which your payment could increase or reduce. We will tell you before we change your payment. You can choose not to accept an increase in your payment by proportionally reducing your amount of cover instead. Payments to us may change during the length of cover even if you make no changes or do not select increasing cover. Payments after review could be higher than guaranteed payments would have been. Terms and conditions apply. If you are unsure whether guaranteed or reviewable are suitable for you, please speak to your financial adviser. You can find full details of your payment basis on your Quotation summary and in your Account pack. How does tax affect my Income Protection Cover? The benefit from Income Protection Cover is paid free of income tax and National Insurance. Current UK tax law and HM Revenue and Customs practice means you don t get tax relief on the amount you pay to us. Tax rules and rates can change and their impact depends on your individual circumstances. The information we provide is based on our interpretation of current HM Revenue and Customs practice. Please ask your financial adviser if you would like a copy of this document in large text, Braille or audio. PRKFIP 9/9/ () Friends Life, PO Box, Bristol BS99 SN. Telephone: Friends Life Company Ltd, the provider of this plan, is authorised and regulated by the Financial Services Authority, register No. (www.fsa.gov.uk/register/home.do). A company limited by shares, registered in England No. 99, registered office: Pixham End, Dorking, Surrey, RH QA. As part of our commitment to quality service, telephone calls may be recorded.