Not upheld: benefit calculation methodology on income protection claim complaint against Aviva Protection UK Limited

Decision detail

Summary

Miss B, a company director, claimed income protection benefit following a serious illness diagnosis in August 2025. Aviva accepted the claim and used discretion to calculate benefit based on a three-year income average rather than the strict 12-month pre-claim period, which resulted in a higher benefit for Miss B. However, Miss B disputed Aviva's decision to limit dividend calculations to the company's net profit during the three-year period, arguing that actual dividends paid (which included retained profits from previous years) should be used instead. The ombudsman found Aviva's approach was fair and reasonable, as the policy terms clearly indicate benefits should be based on profits earned during the relevant periods, and the evidence confirmed Miss B's dividends exceeded the company's current-year profits.

The Ombudsman's reasoning

The ombudsman found that while Miss B was technically an employee and Aviva could have used only the 12-month pre-claim period, Aviva's decision to use a three-year average was a fair discretionary step that benefited Miss B. The policy terms clearly indicate that benefit calculations should be based on profits earned during the relevant periods. Since Miss B's 2023-2024 dividends were paid from retained profits earned in previous years outside the three-year averaging period, Aviva properly excluded them and instead used the company's actual net profits for those years as a reasonable proxy. This approach reflected profits actually earned by the company during the periods being averaged.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website