Ten protection arguments demystified


    Protection advisers always seem to be arguing about something. They are generally a passionate and knowledgeable bunch, who aren’t afraid to challenge the status quo.

    They’re not argumentative by design of course, there just always seems to be a lot to discuss in protection. Whether it’s challenging insurers to improve their products and service, reviewing their technology and business model for the future, it might even be challenging their network to better understand protection, they are always trying to push things forward.

    There are also a few myths when it comes to selling protection - things that have been said for so long they must be true. And of the course the same can be said about habits, those little traits and processes we all pick up until someone points out the possible error in our ways.

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    Here we look at some of the more common arguments, challenges, habits and myths that protection advisers often discuss, either amongst themselves, or when meeting other advisers.

    1. You need an income to buy income protection

    This is a common myth. The premise is that in order to insure your income you surely must have a job in the first place. You could not buy car insurance without owning a car of course.

    However, just about anyone in good health can buy income protection and you don’t need to have a job. Houseperson’s cover is available and provides cover up to approximately £20,000 a year.

    2. Life cover should always be a lump sum

    The vast majority of life cover is sold as a lump sum. In fact, even those who manage to sell it as an income see the majority of claims being switched to a lump sum at the claim stage.

    However, life insurance paid as an income, which is commonly known as ‘family income benefit’, is arguably one of the best policies around, albeit with one of the least intuitive names. It pays a tax-free income from the point of death until the end of the policy term, which could be anything from a few years to most of the policy life, depending on when the claim is made.

    Why is it controversial? Most people probably want an income from their lump sum, but this can incur taxation. So why not buy life cover that pays an income automatically without needed to invest the lump sum?

    Good question, because hardly anyone does - and as above, those that do end up switching it back to a lump sum at the claim stage. Why might that be?

    3. Selling life and critical illness cover on every mortgage is good

    Generally speaking it is. If this happened on every mortgage UK families would be considerably better protected than many are today. However, how good is it really?

    The discussion point here is about what actually happens when the main earner can no longer earn? If the insurance policy pays off the mortgage that is a huge relief, but what about the rest of the bills?