ProtectionApr 17 2012

Protection on a budget

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BySarah Fullaway

Budget income protection: could this be the saviour the stagnating income protection market needs? I think so. If brokers are citing affordability as the main objection around the sale of IP in general, things are looking pretty ropey for the market, come December.

The industry is set for massive price changes on 21 December when the European Court of Justice gender ruling comes into force.

It is widely expected that premiums are set to increase, which adds further pressure on affordability of the long-term IP contract. So, we may well see the rise of budget income protection plans because full-term IP is simply not affordable for all clients. When we are conducting a review of a client’s protection needs, along with IP we also need to consider life insurance to cover mortgages and rent, extra cover for the family and critical illness cover. Budget IP can certainly help you meet the needs of your clients across a suite of products, by offering a more cost-effective solution.

As a product, IP is getting some good PR at the moment, with Aviva and Unum taking prime television slots for advertising. Raising awareness is great, and both providers have a short-term payout option within their plans, so we know there is a market for them.

The ads seem to have captured the imagination of the public, with enquiries for the product increasing. However, for the market to grow there needs to be more word of mouth, rather than just television and media campaigns. People are natural followers, so if it becomes the norm to have IP, because everyone else has it, you will find more and more people taking cover. How will this happen? If the IFA world starts to sell more of them, of course.

As a mortgage broker in the early days of my career, I was in the unknowingly unfortunate position of being tied to one insurer. Since being whole of market, I see the massive problem this causes the protection world. Why? Because tied agents are trying to shoehorn a product to meet a client’s needs, when the product is not right for the client.

I am not talking about mis-selling here, but income protection is a typical example of this. Not all IP providers are in the market for the same clients. So, those advisers who are selling policies to higher-risk occupation classes on ADL definitions are simply selling, in my opinion, poor quality contracts that will be difficult, if not near on impossible, to claim on.