The unintended consequence is that, possibly the most needed protection, has fallen to the back of both adviser and consumer minds.
Discussing Income Protection (IP) or Accident, Sickness and Unemployment (ASU) should play an important part of a holistic review of any consumer protection needs.
A recent study by Scottish Widows reveals fewer than 4% of UK working adults has a form of income protection. This is despite the fact that Legal & General’s Deadline to the Breadline highlights that 35% of people have no savings. Using the LV Risk Reality calculator with your customers can quickly highlight the need for protecting their income. An average 35 year male has an 11% risk of death but a 37% risk of being unable to work for two months or more.
IP can be perceived as expensive but ‘value added’ benefits provided, such as back to work support, can outweigh the cost. ASU will potentially have a cheaper premium but with limited benefits such as a shorter benefit period and capped income payout.
Customising solutions such as a 12 month deferred period on IP with a 12 month back to day one ASU policy provides adequate cover in a cost effective way. Another option is combining a lower critical illness sum assured with an element of IP providing a holistic tailored result for your client whilst meeting their budget requirements.
When completing the budget planner with your customers this is an ideal time to discuss the need to protect the lifestyle they currently have. Keeping in mind that the mortgage is quite often only a small part of their regular outgoings. MMR has made lenders stress test the ability for future mortgage payments on higher interest rates. However, the effect of a change of interest rate on a customer’s circumstances would be dwarfed by the impact of them losing their income.
IP has become a key focus for life providers with innovation in ‘hybrid’ products offering a variety of product propositions to support your client’s circumstances and needs.