Product Specification#
Status: Draft, 2026-08-03 (all cited sources accessed 2026-08-03).
Scope note. This is a standardized composite specification assembled for reference
liability cash-flow modeling. It does not describe any single insurer’s product. Facts
carrying a source tag — [S#] (primary product documents) and [R#] (regulatory/actuarial
references), both numbered per _research/income-protection.md — resolve against
sources.md in this directory (numbering carried over verbatim; never renumbered).
[REG-R#] tags resolve against the cross-product reference library
references/regulatory-and-actuarial-references.md (its own R-numbering; research
provenance in _research/regulatory-actuarial.md). Values marked std are
standardizations introduced for the reference implementation; each std table row
carries a footnote giving the rationale and the observed range across insurers. Facts
the research file could not verify are flagged unverified.
Product overview and market role#
UK individual income protection (IP) is the long-term “permanent health insurance” contract: it pays a regular monthly benefit while the insured is incapacitated by illness or injury, after a chosen deferred period, until recovery, death, the end of a limited payment term, or policy expiry. Legally it is long-term insurance business — RAO Class IV “Permanent health” requires contracts “expressed to be in effect for a period of not less than five years” (or to normal retirement age) and non-cancellable by the insurer except in contract-specified special circumstances R6. All six sampled products satisfy this (explicit minimum 5-year terms in four of them [S2] [S4] [S9] [S11]; a 5–52 year term band in a fifth [S6]).
Two structural families exist in the sampled market [S1]–[S12]:
Proprietary/mutual insurer products (five of the six sampled providers: [S1] [S2]; [S3] [S4]; [S5] [S6]; [S7] [S8]; [S10]) — a monthly benefit chosen in £, financially underwritten against a banded percentage of pre-tax earnings.
Holloway-style friendly society contracts (the sixth sampled product [S11] [S12]) — benefit bought in units with age-costed premiums and optional participation in society surpluses accumulating a capital sum.
Own occupation is the primary incapacity definition at all six sampled insurers [S1] [S3] [S5] [S7] [S10] [S12]. No sampled product has a cash-in or surrender value ([S4] [S5] [S7]; the exception is the Holloway contract’s capital-sum option, which returns the accumulated capital sum less an early-closure penalty [S11]). Waiver of the IP premium during claim is standard, with mechanics varying by insurer [S1] [S3] [S5] [S7] [S10] [S11]. Benefits from individual IP bought from taxed personal income are currently free of income tax ([S4]; no tax or NI deducted [S7]; benefit “currently free from tax”, which motivates the ~60% replacement ceiling [S11]).
Distribution and conduct fall under FCA ICOBS as pure protection business R9 (fetched_ok=false in the product research pass — verified via the shared library REG-R11); prudential valuation is under Solvency UK technical provisions R7, and the in-payment claims element is Matching Adjustment-eligible R8.
The representative design specified below is a full-term, guaranteed-premium, own-occupation, RPI-escalating monthly-benefit IP on the mainstream adviser-sold pattern of two of the sampled providers [S1] [S2] [S5] [S6] (rationale in Variations across insurers). The 24-month limited-payment-term “budget” variant, the Holloway unit-priced contract, and one provider’s health-linked premiums [S10] are documented as variations, not the chassis.
Representative specification#
Product identity and issue rules#
Parameter |
Representative value |
Basis |
|---|---|---|
Design type |
Individual income protection: long-term (Class IV) monthly-benefit contract, full cover to term, non-cancellable by insurer |
R6; design family [S1] [S3] [S5] [S7] |
Structural family |
Proprietary/mutual monthly-benefit design (benefit chosen in £) |
[S1] [S3] [S5] [S7] [S10]; choice std (1) |
Incapacity definition |
Own occupation: incapacity, caused by illness or injury, to perform the material and substantial duties of the own occupation |
[S1] [S3] [S5] [S7] [S10] [S12] |
Entry ages |
18–59 |
[S1] [S2] [S6] [S9]; composite std (2) |
Expiry age |
Selected at outset, 50–70; base cell 65 |
band [S2] [S4] [S6] [S7] [S9]; base-cell pick std (3) |
Minimum term |
5 years |
[S2] [S4] [S9] [S11]; legal floor R6 |
Premium basis |
Guaranteed level (changes only via the escalation option) |
[S1] [S3] [S5] [S7]; choice std (4) |
Cash-in / surrender value |
None at any time |
[S4] [S5] [S7] |
Cooling-off |
30 days, full premium refund; thereafter cancel any time without value |
[S1] [S4] [S5] [S7] [S11] |
Base model cell |
Male, entry age 35, occupation class 1, earnings £40,000/yr, benefit £2,000/month, deferred period 26 weeks, expiry age 65, RPI escalation on, guaranteed premiums |
std (5) |
Footnotes to std rows:
The monthly-benefit design is chosen over the Holloway unit-based design: five of six sampled products use it, and it is the mainstream adviser-sold chassis. The Holloway contract (unit-priced benefit, age-costed premiums, discretionary surplus participation) is documented under Variations [S11] [S12].
Observed entry-age ranges: 18–59 at three providers ([S1] [S2]; [S6]; [S9]), 17–59 at a fourth ([S3] [S4]), 16 to before the 60th birthday at a fifth ([S11]); the sixth provider’s IP entry ages are not stated in the fetched plan provisions (research gap) [S10]. 18–59 is the modal band.
Observed expiry rules: end between age 50 and the 71st birthday [S2]; before 70 [S4]; maximum 70 [S6]; selected finishing age 50–70 [S7] [S9]; selected retirement age 50–70 or state retirement age if higher (the only sampled product with a State Pension age link) [S11]. The composite takes the common 50–70 band; 65 is a base-cell modeling pick inside it.
Guaranteed level premiums dominate the sampled mainstream [S1] [S3] [S5] [S7]; reviewable premiums (fixed 5 years, then reviewed) and age-costed scales are documented under Variations [S1] [S4] [S6] [S7] [S10] [S11].
Pure modeling cell. £2,000/month = £24,000/yr against £40,000 earnings is a 60% replacement ratio, inside the 65%-band cap below (maximum benefit at these earnings: 0.65 × £40,000 / 12 = £2,166.67/month). Premium rates are not public (see Premiums, footnote 15).
Benefit amount#
Parameter |
Representative value |
Basis |
|---|---|---|
Chosen monthly benefit |
Selected at outset; base cell £2,000/month |
std (5); minimum cover £100/month [S6] |
Maximum benefit (earnings cap) |
65% of the first £60,000 of pre-incapacity gross annual earnings + 50% of the excess |
band structure and breakpoint [S1] [S2] [S5] [S7]; upper-band pick std (6) |
Absolute cap |
£20,000/month (£240,000/yr) |
[S1] [S2]; pick std (7) |
Earnings definition |
Employed: pre-tax PAYE earnings incl. P11D benefits in kind; self-employed: pre-tax share of profits; working shareholders of companies with ≤3 other shareholder-directors may count dividends |
[S1] [S3] [S4] [S5] [S11] |
Earnings reference period |
Last 12 months before incapacity |
[S1]–[S7]; one provider applies 3-year averaging for volatile earnings [S5] |
Minimum benefit guarantee |
£1,500/month, conditional on working ≥16 h/week at incapacity |
mechanics [S1] [S2]; level pick std (8) |
Over-insurance tolerance |
Benefit paid in full if the assessed maximum ≥ 90% of the benefit amount |
[S1] [S5]; one provider states it as a 10% tolerance [S3] [S4] |
Offsets at claim |
Continuing employer/business income (incl. sick pay and earned dividends), other insurance replacing income, pensions paid due to incapacity; state benefits NOT deducted |
[S1] [S3] [S5] [S7] [S10] [S11]; composite list std (9) |
Benefit taxation |
Free of income tax to the individual under current law |
[S4] [S7] [S11] |
Observed replacement formulas: 65%/45% around £60,000 at two providers ([S1] [S2]; [S7]); 65%/50% around £60,000 at a third ([S5]); 60%/50% around a £5,000/month (£60,000/yr-equivalent) breakpoint at a fourth ([S10]); flat 60% at the remaining two ([S3] [S4]; [S11]); the older generation of the [S7] product used 60%/40% around £100,000 [S9]. The composite keeps the modal £60,000 breakpoint and 65% first band, and picks 50% for the upper band per the research file’s representative design note (observed upper band 45–50%).
Observed absolute caps: £20,000/month = £240,000/yr [S1] [S2]; £20,833/month level [S3] [S4]; £250,000/yr including all other IP [S5] [S6]; £10,000/month [S7]; £16,666/month [S10]. The round £20,000/month figure [S1] [S2] is adopted.
Observed minimum benefit guarantees: £1,500/month (≥16 h/week [S1] [S2]; net of offsets, ≥16 h self-employed / ≥25 h employed [S3] [S4]; ≥30 h employed / ≥20 h self-employed [S10]; “up to £1,500” [S11]); £1,750/month at one provider [S5]. Doctors/surgeons get doubled floors — £3,000 ([S3]; [S10]) or £3,500 ([S5]) — excluded from the composite. £1,500 with the ≥16 h/week condition [S1] [S2] is the market convention.
Each insurer’s offset list differs in detail (e.g. one deducts only 60% of continuing remuneration and explicitly exempts rental income and non-employment dividends [S10]; another deducts 60% of sick pay/pensions and 100% of other insurance [S3]; a third deducts other-insurance payments only above £50/month in total, taxable income net [S1]). The composite adopts the [S1] offset-list headings without percentage haircuts. Universally, state benefits are not deducted [S3] [S4] [S7] [S9] [S10], though IP payments can reduce means-tested Universal Credit [S3] [S4] [S5].
Deferred period and claim payment#
Parameter |
Representative value |
Basis |
|---|---|---|
Deferred period menu |
4 / 8 / 13 / 26 / 52 weeks |
[S6]; menu adoption std (10) |
Base cell deferred period |
26 weeks |
std (10) |
Benefit payment |
Monthly in arrears from the end of the deferred period (first payment ~1 month later); partial months pro-rated daily |
[S1] [S3] [S10] |
Claim notification |
Within 8 weeks of incapacity, or before the deferred period ends if shorter |
[S1]; composite std (11) |
Payment term |
Full term: benefit payable until recovery, death, no further loss of earnings, or expiry |
[S1] [S3] [S5] [S7] [S10]; choice std (12) |
Linked claims |
Recurrence of the same cause within 52 weeks of payments stopping: deferred period waived, payments restart |
window pick std (13) |
Proportionate / rehabilitation benefit |
On partial return to work: reduced benefit = (A − B) / A × C (definitions in Contractual mechanics) |
formula [S7]; common structure [S1] [S3] [S5] [S10] [S11] |
Terminal illness acceleration |
Out of scope (variation) |
[S5] [S11] |
Observed menus: 4/8/13/26/52/104 weeks plus dual deferred [S1] [S2]; 1/2/3/6/12 months [S4]; 4/8/13/26/52 weeks [S6]; Day 1 to 52 weeks [S7]; 7 days to 60 months plus dual deferred [S10]; 1–52 weeks plus a day-one accident option [S11]. The composite adopts the 4/8/13/26/52-week menu [S6] — the common core across all six. 26 weeks is chosen as the base cell: it aligns with the NHS sick-pay structure of 6 months’ full pay then 6 months’ half pay [S2] and is a directly supported IP11 rate split (DP26) R1. Dual deferred periods and occupation-specific sick-pay-linked deferreds (NHS, teachers) are out of scope [S1] [S3] [S5] [S7] [S10].
Observed notification deadlines scale with the deferred period: before 8 weeks of incapacity or before the deferred period ends if shorter [S1]; 2 or 8 weeks by waiting period, late notice restarts the waiting period [S3]; 2–8 weeks by band [S7]; immediate to 2 months by band, claims notified >90 days after deferred-period end may be declined [S10]; 7 days or 1 month [S12]. The 8-week / deferred-period-end rule [S1] is adopted; notification has no cash flow effect in the reference model.
Full cover to term is the representative payment term per the research file’s representative design. Limited payment terms of 12/24/60 months (24 months standard) are the budget variant — see Variations [S1] [S2] [S4] [S6] [S7] [S10].
Observed linked-claim windows: 12 months from end of the previous claim [S1]; 6 months from return to work [S3] [S4]; 52 weeks from payments stopping, same cause and occupation [S5]; 6 months at two providers ([S7]; [S10]); 52 weeks from return to work [S11]. The composite takes 52 weeks (= the long end of the observed 6–12 month range [S1] [S5]), measured from payments stopping [S5].
Contractual mechanics#
Maximum benefit and the amount payable at claim#
Let E be pre-incapacity gross annual earnings (defined above), B the escalated
monthly benefit at the claim date, OFF the monthly total of offset income, and
G = £1,500 the minimum benefit guarantee. The assessed maximum is:
MB_annual = 0.65 x min(E, 60000) + 0.50 x max(E - 60000, 0)
MB = min(MB_annual / 12, 20000) (£/month)
with band structure per [S1] [S2] [S5] [S7] and std picks per footnotes 6–7. The amount payable per month of full incapacity, following one sampled contract’s guarantee mechanics [S1] [S2] with the std composite parameters:
AP = B if B <= G (paid in full)
AP = B if MB - OFF >= 0.9 x B (90% tolerance)
AP = min(B, max(G, MB - OFF)) otherwise
The guarantee requires the insured to have been working ≥16 h/week at incapacity
[S1] [S2]. Because underwriting sets B against the same formula at outset, the
guarantee and tolerance bite only where earnings have fallen since outset. Premiums
are not refunded when AP < B [unverified — not located in the research extracts].
Deferred period#
Benefit becomes payable after d weeks (base cell: 26) of continuous incapacity
under the own-occupation definition; payments are monthly in arrears from the end of
the deferred period, with partial months pro-rated daily [S1] [S3] [S10]. Premiums
remain payable during the deferred period and are waived from benefit-payment start
(std convention, footnote 16). Payments stop on the earliest of: ceasing to
meet the incapacity definition (recovery), no further loss of earnings, death, and
the policy end date [S1] [S3] [S5] [S7] [S10].
Escalation#
With escalation elected (base cell), at each policy anniversary y:
j(y) = min(max(RPI_y, 0), 0.10) (no change if RPI <= 0 [S1])
B(y+1) = B(y) x (1 + j(y))
P(y+1) = P(y) x (1 + 1.5 x j(y)) (premium multiplier [S1] [S2]; pick [std])
Escalation of B continues during claim [S1] [S2]. Without the option, B and P
are level for the term [S1] [S5].
Proportionate and rehabilitation benefit#
On a partial return to work — reduced hours in the own occupation (rehabilitation) or a different, lower-paid occupation (proportionate) — a reduced benefit is paid on the formula, stated here in one contract’s lettered form [S7] and structurally common to all six sampled products [S1] [S3] [S5] [S10] [S11]:
reduced benefit = (A - B) / A x C
where, exactly as the research records for [S7]: A = pre-incapacity earnings (as
financially assessed), B = earnings in the new or reduced occupation, and C = the
benefit that would otherwise be in payment. Worked example from the source: a 50%
earnings loss against a £1,000/month assessed benefit pays £500/month [S7]. (The B
in this contractual formula is earnings, not the sum assured; the technical notes use
distinct symbols.)
Linked claims#
If the insured, having returned to work, suffers a recurrence of the same cause within 52 weeks of payments stopping (std pick, footnote 13), benefit payments restart without a new deferred period [S1] [S3] [S5] [S7] [S10] [S11]. Returning to work against medical advice voids the linkage at some insurers [S5] [S7].
Alterations and increase options (not modeled)#
Sampled products allow benefit/term/deferred-period alterations (decreases without underwriting; increases with) [S1] [S3] [S5] [S7] and guaranteed insurability increases on life events (marriage, mortgage, childbirth, salary rise) without medical underwriting, capped per event and in lifetime total — e.g. 50%-of-cover/£9,000-yr per event [S1], £10,000/yr per event with a £35,000/yr lifetime total [S3], £12,000/yr per event / £24,000/yr lifetime [S5], 50% or £833.33/month [S7], 10% per event [S11]. These are documented for completeness; the reference model holds cover changes at zero.
Riders and options#
In scope (modeled):
Escalation (increasing cover) option — RPI-linked, as specified above [S1] [S2]; on in the base cell.
Waiver of premium — standard feature, premiums waived while benefit is paid [S5] [S7] [S10] [S11]; modeled as zero premium income from claims in payment.
Proportionate/rehabilitation benefit — built into all sampled contracts [S1] [S3] [S5] [S7] [S10] [S11]; carried structurally as a claim-severity factor in the model (technical notes), default off.
Out of scope (listed for completeness; no charges or benefits projected): fracture cover (£650–£6,000 per schedule) [S1] [S3] [S5]; hospitalisation benefit (£100/night after 6 nights, max 90) [S1] [S5] [S10]; trauma lump sum (6× monthly benefit capped £40,000) [S1]; death benefits (£5,000–£10,000) [S3] [S5]; children’s illness/hospitalisation benefits [S3] [S5] [S10]; terminal-illness acceleration [S5] [S11]; rehabilitation support services and in-claim recovery benefits [S3] [S10]; an overseas-treatment benefit [S1]; guaranteed insurability options (above) [S1] [S3] [S5] [S7] [S11]; dual deferred periods [S1] [S10]; day-one accident cover [S11]; NHS/teacher sick-pay-linked deferred periods [S1] [S3] [S5] [S7] [S10]; career breaks and policy breaks [S5] [S7] [S11]; an early-claim benefit uplift and a health-engagement-linked premium adjustment [S10]; an unemployment premium waiver and a mortgage-payment facility [S3] [S4]; the Holloway capital-sum (surplus participation) option [S11] [S12].
Variations across insurers#
Incapacity definition. Own occupation is universal as the primary definition — none of the six sampled products uses suited or any-occupation as the primary basis for standard risks [S1] [S3] [S5] [S7] [S10] [S12]. Variation is in the fallback for those not in (full) work: a homemaker (meal/housework) test [S3]; a three-tier test (serious-illness list, then 3-of-9 everyday tasks) [S5]; a houseperson test on 3-of-6 ADLs, capped £1,500/month [S10]; going-outdoors/household-duties tests [S7]; a separate 12-month restricted benefit [S1]; a houseperson definition capped £2,730/yr [S11]. One provider alone offers an own-occupation/suited-occupation hybrid variant and tapers own-occupation benefit to 75% after 52 weeks and 50% after 104 weeks of claim [S11]. Representative choice: pure own occupation, no fallback tier — the standard-risk working insured is the model cell.
Benefit formula. Two-band percentages of earnings around £60,000 — 65%/45% at two providers ([S1]; [S7]), 65%/50% at a third ([S5]), 60%/50% at a fourth ([S10]) — vs flat 60% at the other two ([S3]; [S11]). Caps £120,000/yr to £250,000/yr [S5] [S7]. Representative: 65%/50% at £60,000, cap £240,000/yr (footnotes 6–7).
Deferred periods. 4/8/13/26/52 weeks is the common core [S6]; Day 1 / 1-week short deferreds are the friendly-society and specialist niche [S7] [S11] [S10]; one provider adds 104 weeks and another 24/60 months at the long end [S1] [S10]; dual deferreds [S1] [S10] and public-sector sick-pay-linked deferreds (in every sampled product but one [S11]) are established features. Representative: the common core, base 26.
Payment terms. Full term vs limited: 24 months is the standard budget variant (a limited payment term [S1] [S2]; a budget 12/24 option [S4]); 1/2/5 years [S6]; 2/5 years [S7]; 12/24/60 months [S10]. All pair the limit with a 6-month back-at-work requirement before a same-cause re-claim (26 weeks in one contract [S5]) [S1] [S4] [S5] [S7] [S10]. Representative: full term; the 24-month variant is the documented budget alternative.
Premium bases. Guaranteed level premiums dominate [S1] [S3] [S5] [S7]; reviewable premiums follow a common pattern — no change for 5 years, then reviews with no cap on changes [S1] [S4] [S6] [S10]; age-costed guaranteed scales are the friendly-society hallmark ([S7]; [S11]). One provider uniquely links premiums to measured health engagement (+2.5%/+1.5%/ +0.5%/0% p.a. by health-engagement status) [S10]. Representative: guaranteed level.
Minimum benefit guarantees. £1,500/month is the market convention [S1] [S3] [S10] [S11]; £1,750 at one provider [S5]; doctors/surgeons get doubled floors [S3] [S5] [S10]. Representative: £1,500 (footnote 8).
Escalation. RPI is the modal index (three providers [S1] [S3] [S10]); one uses CPIH [S7] and another CPI [S11]; all cap benefit increases at 10%/yr; premium multipliers 1.2× ([S5]) to 1.5× (three providers [S1] [S3] [S7]). Representative: RPI, 10% cap, 1.5×.
Structural outliers. (a) The Holloway contract: benefit in units (£10.50/week per unit, 5–75 units), age-costed guaranteed premiums, optional capital sum accumulating discretionary surplus and bonus allocations on With-Profits Actuary advice, fortnightly benefit payment, standard exclusion list [S11] [S12] — the only sampled product with an exclusion list and the only one with a savings-like element. (b) One provider’s status-linked premiums and status-linked early-claim benefit uplift [S10]. Neither is the representative chassis; both matter for model-generality arguments (a Holloway model needs a capital-account state; a status-linked model needs premium paths contingent on engagement status).
Expiry-age linkage. Only one of the six sampled products links expiry to state retirement age (“or state retirement age, whichever is higher”) [S11]; none of the other five products’ documents link expiry to State Pension age — expiry is a selected age in a 50–70/71 band [S2] [S4] [S6] [S7]. The composite therefore uses a fixed selected expiry age.
Regulatory context#
Prudential (PRA / Solvency UK). IP liabilities are valued under the PRA Rulebook Technical Provisions Part: technical provisions = best estimate + risk margin, where the best estimate is the probability-weighted average of future cash flows discounted at the relevant risk-free interest rate term structure R7 REG-R1. The risk-margin cost-of-capital rate is 4% with a life risk-tapering factor λ = 0.9 REG-R4. Under the Matching Adjustment Part, the in-payment element of an income protection policy is an “eligible element” that can enter an MA portfolio where organised and managed separately, even though the whole contract does not qualify R8 REG-R2. Contract design itself is constrained by RAO Class IV: at least five years or to normal retirement age, non-cancellable by the insurer R6 REG-R14.
Conduct (FCA). IP is a pure protection contract conducted under ICOBS rather than COBS, even though it is long-term (Class IV) business prudentially R9 (fetched_ok=false in the product research pass; verified via REG-R11). The Consumer Duty applies to this retail business; its price-and-value outcome drives the product-level value assessments that cash flow models increasingly support REG-R12. Consumer disclosure duties at underwriting are governed by CIDRA 2012 (duty to take reasonable care not to misrepresent; graduated remedies), which underpins claim declinature/avoidance assumptions REG-R20.
Tax. Benefits from individual IP funded from taxed personal income are free of income tax to the policyholder under current law [S4] [S7] [S11]; benefit payments can however reduce means-tested Universal Credit [S3] [S4] [S5]. At company level, post-2012 protection business is non-BLAGAB long-term business taxed on trade profits (not I-E) under Finance Act 2012 Part 2, so a UK IP model carries a trade-basis tax flag rather than a policyholder tax engine REG-R17.
Actuarial standards. UK technical actuarial work on IP pricing, reserving and experience analysis is subject to FRC TAS 100 (general) and TAS 200 (insurance) R10 (fetched_ok=false in the product research pass; verified via REG-R33 REG-R34).