With income protection an increasingly hot topic post-pandemic, James Moorhouse examines how the product can be promoted
The past 18 months have highlighted the need for people to protect their income if they are unable to work due to an illness or injury. As lockdown restrictions ease, there is still a feeling of uncertainty due to new variants, people still awaiting vaccinations and those with long-term conditions caused by their original Covid-19 infection.
Bearing these things in mind, are financial advisers up to date with the different type of income protection (IP) products and what’s currently available?
IP insurance protects against a financial loss if a person finds they are unable to work for health or disability reasons. It works by paying a regular income to the insured if their illness, injury or disability prevents them from working.
There are two main types of income protection:
- Individual income protection (IIP): When an individual protects a portion of their earnings independently by purchasing cover through an independent financial adviser (IFA), an insurance broker or directly from an insurance provider.
- Group income protection (GIP): Employer-provided income protection insurance that protects their employees’ income. The employer is the policyholder, premiums are submitted to the insurer by the employer and claims are generally paid to the employer to pass on to the employee through the PAYE system as reduced salary.
The main benefit of having an IP policy or being a member of an employer-provided policy, is that the insured person can continue to pay their bills, rent or mortgage if they are unable to work.
IP is often overlooked in comparison to life and critical illness insurance. Many people are familiar with a life insurance policy that pays an amount to a dependant on the death of an insured person, but the focus there is on the death of an individual. IP is the foundation block for building financial resilience, but not everybody understands this. Some people assume their employer will look after them; others assume it will be the state.
To help people understand their financial situation better, the charity Turn2us was created to provide practical help to people who are struggling financially. Of particular interest is its benefits calculator, which allows users to calculate any means-tested state benefits and carers’ allowance they may be eligible for. This should help identify a need for people when considering IP.
In addition to financial cover, most IP products have also evolved to provide additional support to the insured person. This is with the aim of enhancing the recovery process after illness or injury, so the claimant can return to previous activities, including work. The value of rehabilitation support has been documented in case studies, where in many instances the claimant has faced delays to access treatment via the NHS, particularly for common health conditions, or lacking specific return-to-work guidance.
The top five product providers measured by number of new individual IP sales during 2020 are:
- Legal & General: 37,488
- Aviva: 34,601
- Royal London: 20,590
- LV=: 20,429
- The Exeter: 12,660.
The top five product providers measured by the number of members of GIP policies during 2020 are:
- Unum: 810,362
- Aviva: 699,921
- Legal & General: 389,261
- Canada Life: 344,402
- Zurich: 234,659.
Income protection is often overlooked in comparison to life and critical illness insurance. It is the foundation block for building financial resilience
However, it is not just individuals who are affected when they are unable to work due to an illness or injury. Employees are the most valuable part of a business, particularly if they have unique job functions or are fundamental to business continuity. The sudden illness of an employee could have dramatic consequences on the way a firm or organisation operates. Key person IP insurance is intended to pay regular sums to the company if the key person is absent because of illness or injury.
Conversations around IP should also not be limited to employees. Customers taking out a mortgage or renting a property also need to discuss what options are available for keeping up payments if they are suddenly unable to work for health reasons.
With more people seeking to actively engage with protection insurance, it is important that advisers know how and when to correctly recommend IP insurance, whether on its own or as part of a package. This is a unique opportunity to show real value for customers by supporting them at this difficult time. By creating and recommending products that are relevant, easy to understand and provide genuine protection, customers will feel more empowered and better engaged with their financial products.
This year, the Income Protection Task Force launched Income Protection Awareness Week, which took place on 20-24 September. It included content, online events and other resources to help promote awareness of these products.
The Chartered Insurance Institute will also publish a guide to IP in the autumn.
To access resources from Income Protection Awareness Week, visit: iptf.co.uk/income-protection-awareness-week
James Moorhouse is content manager at the PFS
Image credit | Getty