Advisers are being urged to discuss and document the “private versus state provision” principle following clarification from the government that lump sum payouts from protection policies will not be means-tested under Universal Credit.
The Department for Work and Pensions confirmed that if people use insurance payouts to reduce or pay off their mortgage or any other debts, the capital will not be taken into account when assessing entitlement for Universal Credit.
Justin Harper, LV=’s head of protection policy, said that while the clarification is a positive step, it has duty of care implications for both advisers and insurers.
He advised that when making any protection recommendation, particularly alongside a mortgage, advisers discuss the fact that the protection policy may have consequences for eligibility or amounts available from state benefits.
“At the claim stage too, advisers have a role to play in offering guidance and advice in light of the changing financial circumstances of their customer, and considerations for spending any insurance payout,” he added.