Positive indicators for income protection insurance
05 December 2018
Earlier this year I set out the main obstacles to income protection sales with reference to research that Defaqto undertook with financial advisers in 2017. The original article may be found here.
In essence, advisers felt that clients are more interested in life and critical illness cover and they perceive income protection insurance to be too expensive.
Having refreshed the research recently, I’m sorry to report that little has changed in terms of these objections, which continue to be cited as the principal reasons why, of all the main protection products, income protection is sold the least.
Busting the IP price myth
While 46% of advisers felt that clients are more interested in life and/or critical illness cover and can’t afford both, this is slightly fewer than in last year’s study when 51% of advisers gave this reason. This perhaps underlines the improvement in fortunes of income protection insurance in the face of a strong life and critical illness cover market; but, the perception among clients that income protection insurance is more expensive than other forms of protection remains firmly entrenched – 52% of advisers said this in 2018 compared with 50% in 2017.
I continue to hold the view that income protection insurance is not more expensive than other forms of protection, but I can see why clients might think that if their adviser fails to adequately explain the difference between a disability insurance that could potentially pay out a monthly benefit for as long as 40 years and a critical illness policy that pays out a single lump sum. The former could provide continuing financial security for someone suffering long term sickness and disability, whereas the latter is designed to pay off mortgage debt or to supply a short term financial cushion. The comparison is not a straightforward one.
It is encouraging, therefore, that the percentage of advisers in the study that said they think IP is actually too expensive has fallen: in 2017, 24% of adviser felt that IP was too expensive; in 2018, only 15% said so.
Promotion and advocacy
The results of these studies fluctuate year on year and we would be unwise to set too much store by a slight upturn in optimism, but as an advised purchase, the prospects for income protection are largely dependent on the level of commitment the adviser has to the product. The work of the 7 Families initiative in recent years and the continuing work of the Income Protection Task Force (IPTF) has been critical in creating strong advocates for IP among the adviser community.
The hard work of the Chartered Insurance Institute’s Building Resilient Households group has borne fruit with the relaxation of Universal Credit means testing rules for income protection benefits where they are intended for mortgage repayment purposes and paid direct to the lender. This represents the removal of a significant disincentive to people making their own provision, particularly those in the lower income bracket. Whilst this may not affect the more affluent clients of financial advisers, it is nevertheless another positive indicator for a product that should be the basis and mainstay of most people’s financial plan.
In this year’s study, we asked if advisers intended to change their emphasis on income protection insurance in the next 12 months. Just short of three quarters of respondents said they would continue to recommend income protection as often as they do now. Just over a quarter of respondents said they intended to recommend income protection more frequently. Time will tell.
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