While the majority of people will happily insure their car, home or family pet, very few choose to take out insurance to protect the income that could be lost if they were unable to work due to illness or injury.
Yet without an income, most people would be in serious difficulty, very quickly. In fact, figures from Legal and General’s Deadline to Breadline 2022 report found that many households are only 19 days away from the breadline should their monthly income stop, with 60 per cent having less than £5,000 in savings, while 16 per cent have no savings at all.
Given the fact living costs have increased significantly over the last year due to rising interest rates and high inflation, this is extremely concerning and suggests many people across the UK are particularly vulnerable to financial shock should the worst happen.
One of the biggest challenges advisers often face when trying to make people understand the value of protection, is changing customer mindsets that income protection is a necessity and not a luxury.
Younger people, in particular, often believe they are unlikely to be impacted by an illness that would cause them to stop working, yet figures from the Office for National Statistics show 2.5 million people were unable to work due to long-term sickness in 2022, with the largest increase seen in the 25-34 age bracket.
Making customers understand the importance of protecting their income can certainly be challenging but following the introduction of the Consumer Duty rules on 31 July, it is essential advisers ensure they are at the very least, having a conversation about protection with all their clients.
Advisers raising awareness
The good news here is that we know – certainly within The Right Mortgage – that advisers are increasingly doing this.
Our quarter-on-quarter income protection sales increased by 100 per cent, and we are hopeful that more firms will start (and finish) these conversations. We absolutely prioritise this and work with insurers in order to offer products not available elsewhere, the British Friendly moratorium-underwritten product being the prime example.
However, what about those customers who might feel protection is not a priority?
Well, you might start with the fact that taking out a mortgage to buy a home is one of the biggest financial commitments many people will ever make, so highlighting the importance of protecting the income that pays for that home is crucial.
Raising the topic early in the mortgage conversation is a good place to start. Ask your client how they would cope financially without their monthly income and explain why it is important that they budget at least 10 per cent to 15 per cent of their monthly income for their mortgage payment and protection needs.
Draw comparisons between other types of insurance the customer may feel are important such as home, car and pet cover and ask them whether they could afford to continue to pay their mortgage, and finance the lifestyle they have become accustomed to, if they were unable to work.
If the answer is no, then they could be at risk of losing a lot.
Consumer misunderstandings
One of the many other misconceptions that customers often have about insurance generally, is that policies never pay out. Yet figures from the Association of British Insurers show £6.85bn was paid out to both group and individual income protection claims in 2022, with £231m paid to people who were unable to work.
Having figures like these to hand helps to demonstrate the value of protection and put things into perspective, making the concept of taking out a policy more tangible for the client.
Another reason why raising the need for clients to have protection in place is important, is that it can open up opportunities for advisers to grow their business and tap into a previously unexplored market.
Given the fact circumstances of clients are always changing, this can prevent the client going elsewhere for their protection needs, safeguard the loss of potential income and encouraging repeat business further down the line. A win-win for all involved.
Educating consumers on the importance of protection is essential and advisers play a vital role in increasing awareness among consumers.
As an industry, we also need to ensure we are proactively exploring ways to help consumers understand how protection works and how it acts as a financial safety net should things go wrong.
