Mortgage Intelligence Update: Do your clients need the option of Low Cost Income Protection?
National Protection Sales Manager Bernie Buron takes a quick look at how budget income protection can form an important part of the client conversation.
A lesser-known part of income protection is low cost, or budget, income protection. This option can be really useful for clients to both afford protection, and to match a policy more suited to their circumstances. Although providers vary as to their policy options, they all generally limit the payments to 24 months.
Budget income protection aims to pay out a percentage of your client’s income on a regular basis for a shorter period than regular income protection policies. Because every client would be in a different financial situation as a result of being unable to work due to illness or injury, having flexible protection options to discuss with your clients is a great idea.
Who might need Budget income protection?
Even though most clients would need to consider long term income protection first, there may be circumstances that would be more suited to budget income protection. Affordability may also be an issue, in which case some form of income protection would be better than none at all.
People on zero-hour contracts or agency workers may benefit from discussing budget income protection, as their employer most likely has no legal obligation to cover their income if they are unable to work.
Most providers will continue to provide policy cover after the initial 24 month pay-out period has ended, as long as premiums are still being paid. The policy will continue to be live, and the client can claim again further down the line after an agreed period has ended.
What budget income protection options are there?
Although the maximum pay out time is limited to 24 months across the providers, there are options your client may need to consider when choosing their budget income protection policy.
There are two main types of policy option: deferred period and stepped benefits. Deferred periods are a common way to ensure the policy does not start paying out until they really need it. Having a longer deferred period often reduces the cost of the premiums.
It is important your client brings contracts, employer details and other information to your meetings, to ensure they fully understand when and how their employer would cover their income if they are unable to work.
Stepped benefits, also known as split deferred policies, are a good option that some income protection providers offer. In this case, the policy will provide a lower income after any deferred period ends, with a larger benefit paid after a second agreed deferred period. This can work really well for those whose employer pays a fixed percentage of the client’s income (for instance 50%) for an initial period, before withdrawing income altogether.
As with all forms of income protection, there are several circumstances which are not covered in the policy which you will need to discuss with your client. These can range from redundancy and unemployment to self-inflicted injuries.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.