The three most common types of protection are income protection, critical illness and life insurance, but more products do fall under the protection umbrella that are not as well known.
Payment protection insurance, a type of short-term income protection, is probably the most well-known protection product outside of the three mentioned, but undoubtedly this is for all the wrong reasons.
Bob Riach, principal at Riach Independent Financial Advisers, said that PPI used to be known as mortgage unemployment insurance and people took it out for that very reason.
According to Mr Riach, PPI became very popular from the late 1980s due to the government changing the rules surrounding unemployment benefits.
He says: “Previously, the government would pay the interest portion of your mortgage if you were unemployed but in the late 1980s the government changed the rules and said they won’t pay anything towards the mortgage for the first nine months so people got PPI to cover them for that period.
“The majority of policies used to pay out after 30 days if you were in receipt of unemployment benefit.”
Mr Riach adds that PPI can cover people for sickness or unemployment or both and it normally pays out for 12 months.
Those who are self employed can only claim on PPI for sickness not unemployment.
However, the scandals have impacted not only people’s appetite for PPI but also advisers’ willingness to sell it.
He says: “I have been doing mortgages for over 30 years and PPI featured as part of that but now around one in 100 clients take it. I think that’s due to the scandals around it.
“Another reason why people don’t take it is because of the initial expense which is a percentage of what you are insuring yourself for and people view it as an additional cost.
“There is actually nothing wrong with PPI at all. There is still a need for it but people are coming for mortgages now and don’t want the additional expense.
“To protect myself from complaints later down the line, I include in my documentation the fact that they decided against taking out PPI.”
According to Steve Devine, chair of the Protect Association, PPI has cast a shadow over short-term income products (Stip) “to the point that currently no one knows how much, or how little, Stip is being sold or claimed on”.
He adds the annihilation of the PPI market, spanning several years, has created a gap that traditional income protection products have not managed to close.
Funeral and health plans
Golden Charter is one firm that offers a range of later life planning products that are tailored for the mature market.
Michael Corish, managing director for business at Golden Charter, says: “People over the age of 50 are increasingly aware in making financial arrangements for the future.”
Last year, Golden Charter sold in excess of 50,000 funeral plans and more than 400,000 have been taken out to date. Their plans work by guaranteeing that the plan holder’s family will have nothing more to pay at the time of need for the funeral director’s services.
According to the Sun Life Direct Cost of Dying Survey 2013, funeral costs have risen by 80 per cent since 2004 at a pace far quicker than the general rate of inflation.
Mr Corish says: “If this trend continues, the average cost of a funeral will be £6,220 by 2022.
“In addition to these clear financial benefits, funeral plans also offer the plan holder peace of mind that everything has been taken care of. Making funeral arrangements in advance relieves the family of worry and uncertainty about the kind of send-off the plan holder would have wanted at what is typically a distressing time.”
According to Funeral Planning Authority statistics, more than 135,000 funeral plans were taken out last year by registered providers, representing a 12 per cent increase on the previous year.
Mr Corish says: “These figures demonstrate the growing popularity of pre-paid funeral plans.”
Another product available, which falls outside the traditional product range, are health cash plans.
According to Philip Wood, executive director for sales and marketing at Health Shield, these policies appeal to consumers who wish to have the option to claim back the cost of everyday health treatments, such as eye tests, dental treatment or physiotherapy.
Health cash plans provide cash back towards NHS healthcare costs and most policies don’t require a medical to join, Mr Wood adds.
According to Laing and Buisson, health cash plans covered an estimated 3,731,000 people throughout the UK at the end of 2012, equivalent to an estimated 5.9 per cent of the UK population.
He says: “They are increasingly popular among employers who want to offer a comprehensive benefits package to their employees.”
However, he warns that a health cash plan should be bought alongside the ‘suite’ of standard protection products, not as an alternative, as it will not replace your salary if you are too ill to work.
The future ‘pick and mix’
Mr Devine has seen membership to the Protect Association expand over the years and the product mix change.
Going forward, he envisages a “pick and mix” of protection products where customers can choose what suits them and their lifestyles.
He says: “It will no doubt continue to do so even faster in the future, as technology provides other opportunities to both new and existing players.
“There are many products sold as both stand alone or as add-ons to other products. There are niche sectors, such as the over 50s.
“I think there will continue to be more modular type products that can be sold as part of a menu of protection products rather than having all singing, all dancing comprehensive products that only the very privileged few can afford to pay for.”
