Discussions around the subject of income protection can be tough to initiate with clients but, says Steve Bryan, those discussions need to be had all the same
Be it our smartphone, our house, our car or even our pets, many of us choose to insure the things we can see and feel. This is, of course, understandable as the potential consequences of not doing so could be very expensive and cause distress.
When it comes to the securing our financial wellbeing and our lifestyle, however, Britain faces a ‘protection gap' - thousands of people across the country who lack the financial support or protection to help them should they be unable to work long-term.
In such a situation it may be that an employee qualifies for the necessary financial support through Statutory Sick Pay (SSP). Research by Legal & General has previously found, however, the average value employees expected to see from SSP was almost two-thirds (62%) higher than the £88.45 per week at which it currently stands.
Three-quarters (76%) of employees thought SSP was £100 or more per week and 15% thought it was more than £200. As a result, more than three-quarters of employees said they would last at most one month before having to make cutbacks in their monthly outgoings if they were solely relying on SSP and unable to work.
An adviser's duty
As people who work in the financial services sector, it is obvious to us that income protection is vital should someone not be able to work for a period of time and not earn their regular salary. We also know discussions around protection are also very tough to have.
Often the best time to talk about protection with your clients is when there is a natural prompt to do so - such as buying a home or starting a family. Lengthy mortgage applications, for example, can often last for hours, however, and put many people off spending any extra time discussing protection.
Yet it is so important advisers do have these conversations with clients and bring home, through effective questioning, how they would cope with a long-term absence, and what effect it could have on them or their family.
After all, advisers have a duty of care to ensure their clients are fully aware of the challenges they could face if left unprotected, and the different policies on offer to provide support when they need it most.
An income protection plan would help these individuals or families to mitigate the loss of income and maintain their lifestyle. The policies pay out a monthly benefit that replaces the policyholder's monthly income if an illness leaves them unable to work.
Without such protection in place and no financial safety net, the day-to-day running of a household can turn into a constant cause of worry, with difficulties paying the mortgage, affording monthly utility bills and keeping a car on the road to name a few.
By equipping your clients with a protection policy, you can give them the peace of mind that they can sustain their family's lifestyle and focus on their own recovery without the added stress of financial worry.
Myths and misconceptions
Advisers and providers both have a role to play in combatting the myths and misconceptions surrounding protection policies - a factor that does hamper the work many people do to try and close the UK's ‘protection gap'.
Perhaps the most common myth about an income protection policy is that the provider won't pay out on a claim - and yet, in 2015, Legal & General paid 95% of all income protection claims, with a total value of £1.3m. While, again, as an industry we might be aware of this, advisers need to communicate the reality to their clients to challenge what is a fundamental misunderstanding about protection.
There have also long been misconceptions about the cost of income protection. Clients have traditionally viewed these policies as expensive and altogether not a necessity. The truth, however, is that providers now offer a range of different solutions to meet the needs of different clients, including many affordable options.
It is important in your conversations with clients that they consider the potential impact a loss of income could have on them and their lifestyle as, ultimately, the advantages and costs of a protection policy often more than outweigh the damaging impact of a long-term absence.
By informing clients of the realities of a long-term absence from work without the financial support an income protection policy can have - asking them if they know how much SSP is and how that might affect their lifestyle - hopefully a useful conversation can be held about the benefits of protection and the vital support it can provide individuals and families across the UK.
Steve Bryan is director, intermediary at Legal & General
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