Income protection is a safety net so it is vital that advisers and their clients grasp under what circumstances and when will they need to be rescued by this product. A safety net is only any good if it is fit for purpose.
As with any product it is vital the adviser grasps the pitfalls as well as the positives of a particular product and conveys this to the client.
Making sure you know how long the benefit will pay out and whether this matches how long a client may need the payout for is vital. For example, is the benefit payable for the duration of time your client remains incapacitated, or until the end of a specified term?
As well as making sure when the policy will catch the client and how much it will pay out, advisers need to check it is strong in the places in needs to be.
For example certain policy’s definition of ‘disability’ may limit coverage, depending on whether the policy is based on the client’s own occupation, a suited occupation or ‘activities of daily life’.
Martin Noone, distribution director for retail protection at Legal & General, says: “It is the agent’s responsibility to ensure that the policy is understood by the customer and the scenarios in which the benefit becomes payable.
“It is important that the level of benefit selected matches the customer’s needs and they understand the limitations that may apply, such as continuing income from an employer (sick pay), or benefits payable from other insurance policies that may reduce the benefit payable from the income protection policy.”
Also, knowing what other safety nets are in place is vital for an adviser to calculate exactly how much benefit the income protection policy they recommend needs to provide.
Mr Noone states: “There is the potential to deduct-state provided benefits from your total should your clients exceed their maximum benefit limits.”
The wide range of income protection available means self-employed individuals in particular, who may not have the safety net of an employer’s sick pay benefit plan and may therefore need a greater level of cover, could find a deal that is right for them.
However, some individuals may struggle to get insured for the amount they want for the price they are willing to pay. Indeed, price is often cited by clients as a reason to put off buying income protection.
If the policy runs for the complete term and is never needed then the cover will cease without any payment being made.
However, many insurance covers, whether relating to motor, household, pet or mobile phone insurance, would also result in no claims being made in many instances without a similar judgement being made.
Mark Anders, director of sales and marketing for individual protection at Friends Life, says: “The return from a protection plan, if the worst case scenario happened, clearly would provide a useful and beneficial return in the circumstances.”
