Archive: Mon May 2015

Mythbusting Income Protection

The protection gap in the UK remains a mystery to many experts, as consumers continue to prioritise their spending on short-term luxuries such as quickly-outdated technology and costly TV subscriptions. More worryingly, a study from a top provider in the UK suggests that 5.2m mortgage holders who earn an income have no protection cover, or even a plan to get one, to cover their repayments if they become too ill to earn.

It is therefore up to advisers to educate clients on how smart Income Protection cover is. We want to help you mend the protection gap by providing you with the tools to break down the barriers created by assumptions and misinformation.

Here is an overview of three of the most damaging myths surrounding Income Protection and the most effective fact-based weapons to use against them:

Myth 1: It’s expensive…

Income Protection is still one of the most affordable forms of protection and boasts some of the lowest premiums in the industry. As well as affordable, it is also one of the most widely suitable to consumers, who wish to ensure long term sickness won’t cause damaging financial detriment.

Use life and budget planners to show how much your client is spending every month. In most cases, it will dwarf the cost of Income Protection. People are often surprised by the low expenditure of Income Protection policies, so it is worth showing how little it can cost for that peace of mind.

Grabbing the opportunity to talk to clients about the cost of protection is invaluable. A survey by YouGov revealed that the majority of consumers admitted they would turn first to state and charity for support, before seeking financial advice. But the financial support from state and charity would likely only be enough to cover some major payments, let alone bills, food and other necessities.

Myth 2: It’s unreliable…

Despite many providers proudly announcing healthy payout levels, the myth that providers regularly don’t pay on claims prevails. Kevin Carr, chief executive of Protection Review, says: ‘The reality is that over 90 per cent of all claims […] in the UK are paid promptly and without fuss’, with most unpaid claims due to unmet criteria. The PPI scandals in recent years have also not helped matters. Unfortunately, some consumers continue to group Income Protection with PPI, when the two types of insurance are markedly different.

Ensuring your client fully understands how to get the most out of Income Protection is also crucial to its perceived reliability. Choosing a longer deferred period for example can reduce the premiums, especially useful if the employer would provide cover up to that point.

Myth 3: It’s unnecessary…

We have Protection Toolkits on Broker Zone to get clients thinking about the necessity of Income Protection by asking three important questions:

In the event of long term absence from work, how long would your employer pay your full salary?

Some people wrongly assume their employer would continue to pay them full salary for as long as they are absent. But many employers would only pay full salary for up to six months’ absence and are only legally obliged to pay statutory sick pay for up to 28 weeks.

Would you cope on state support?

Currently as little as £57.35 a week, state support would quickly be insufficient to prevent savings being dug into. Despite this, many consumers still harbour the belief that the state would adequately support them during financial detriment.

The process of claiming state support is also surprisingly arduous and entails completing lengthy and complicated documents; something your client could do without during the stress of long term illness.

How long would your savings last if you were unable to pay the bills or mortgage?

We just don’t save enough as a nation, which means for a large number of people savings would not last long if used to support their lifestyle in the event of long term absence. Remind your client how hard they have worked to build up any savings and how stressful it could be to see them dwindle away.