ProtectionJan 24 2013

Income protection: The foundation of protection planning

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      CPD
      Approx.30min
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      CPD
      Approx.30min
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      pfs-logo
      cisi-logo
      CPD
      Approx.30min

      Income protection insurance, which was also known as permanent health insurance back in the day, pays a tax free lump sum in the event of ill health.

      It replaces part of your income if you are unable to work because of illness or disability and will continue to pay out until you can return to some kind of paid work, reach retirement or pass away, whichever is sooner.

      However, with around 100,000 policies sold a year in the UK, overall IP remains a niche product from a sales perspective. In 2011 the largest seller of IP in the UK was Friends Life, although some of the banks have moved away from payment protection insurance and towards IP with HSBC and Lloyds reporting also reporting strong sales compared to most IFA providers.

      Demand and interest from consumers is low for all products but sales for income protection are not high in comparison to other protection products because most consumers aren’t engaged or even aware of income protection as a concept. And if they are – most think of PPI.

      That is why it is important for advisers to put their clients in an informed position when looking at the types of protection insurance available. It is easy to sell some cheap life cover, but is that what the family really needs?

      So, when recommending IP to your client what points should be considered? Establishing the client’s budget would be high on the list, but some other points to consider when recommending an income protection policy could be:

      1.Occupation – What do they do for a living and how ‘risky’ is it from an insurer’s view?

      2.Premium – How much is the cover going to cost and will the cost stay the same?

      3.Existing benefits – Employer, State and/or other policies?

      4.Cover details – How much and how long for?

      5.Indexation – Should cover keep pace with inflation?

      Occupation

      When researching the IP cover that is available in today’s market, it is crucial to think about the client’s occupation and what definition it may fall under if they were to claim.

      Different providers have different occupation classes and different definitions of being unable to work, so it is worth spending a bit of time researching and understanding the products available to ensure the chosen policy would in fact pay out.

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