Income protection should be one of the first protection products considered as part of financial planning for people below retirement age. This is a comment I'm sure you've read before and I have no doubt you'll read again.
At the risk of preaching to the choir, the concept of income protection is very simple, it’s a policy that pays out a monetary amount if the policyholder is unable to work. So what are the fundamental stumbling blocks when it comes to selling income protection to the public?
One reason may be cost versus perceived benefit. Seeing a premium of £10 for £100,000 of critical illness cover, compared with £20 for £1,500 a month of income protection, certainly looks more attractive to the average man on the street, and people believe they won’t be ill for more than a few months.
The lump sum will pay off the mortgage, but it won’t pay off the bills month after month, and that £1500 a month could be paid for 5, 10 20 or more years. After five years that comes to £90,000, so after year six they would be in a more comfortable position than if they had chosen a £100,000 lump sum.
If the customer is convinced that the cost is reasonable, they may well object to the perceived complexity of the underwriting. After all, it is the most heavily underwritten of the protection contracts, but in most cases it doesn’t lead to unnecessary delays and at the end of the process the customer should have the best terms that can be offered. (Taking the time and getting the right medical evidence means that 75% of cases where decisions can be made are accepted on ordinary rates medically.)
Now that we’ve managed the customer’s expectations, what about the apparent complexity of the product itself? As I said earlier, the concept is simple and so are the fundamental building blocks of the contract itself, no matter which company is providing the cover. The choice is benefit level, deferred period, cease age and whether the chosen benefit should increase or stay level. On top of that, there are benefits such as rehabilitation and worldwide cover included as standard, with a ‘career break’ option rapidly becoming the industry norm.
Of course, we should continue to look at the fundamentals of the contract to make sure we meet consumer needs, but we shouldn’t rush headlong into commoditising product features unless we are convinced we will benefit consumers. The checks and steps in place for writing income protection business are there for a reason and means as an industry we can continue to offer this valuable cover at an affordable price.
Mark Jones is protection products and actuarial manager at Friends Provident.
The views expressed are those of the author and not those of the company he represents.IFAonline
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