Picking the right policy and assessing alternatives

For example, Tim Johnson, chief executive of Paymentshield, said in the event of a STIP claim, the monthly benefit could be used to cover anything from gym membership to satellite television.

Conversely, MPPI policies cover just the mortgage payments (and related expenses).

Iain Clark, managing director for protection of LV, says advisers should always remember that clients are often more interested in growing and managing their wealth rather than protecting it.

However, Mr Clark said protection products enable clients to preserve their lifestyle if they are unable to work as they provide an often much needed income, making them crucial financial planning tools.

For many clients, whether they are a homeowner or a renter, their biggest monthly outgoing will be their property, which Mr Clark said should make the purchase of a mortgage payment protection insurance product a key consideration.

Ben Heffer, insight analyst for life and protection at Defaqto, says clients could consider taking some form of income protection insurance to cover a percentage of their income. This can cover their household bills and/or rent payments if they don’t have a mortgage, for example.

Long-term income protection (IP) is a superior product, he argues, that can be set up to pay out for much longer and therefore cover long-term incapacity, although it rarely includes unemployment cover.

When it comes to picking the right policy, Mr Heffer says advisers should read the policy details carefully, paying particular attention to any exclusions that might apply.

He says advisers should ensure they have considered all the options that may be right for their client and perhaps use tools that allow you to compare product features rather than just price.

Mr Heffer says: “Work out how long your client could live on savings should they be off work and select a policy with the appropriate excess period, for example 30, 60 or 90 days.

“The longer the excess period, the more cost effective the cover. If the client is self-employed the adviser needs to check that the policy covers the self-employed (most do now) and if it does consider selecting ‘back to day one’ cover, but check what the deferral period is because your client may not receive the first payment for a month or more.

“Find out how your client would pay their household bills over and above their mortgage payments. If they have no provision, get them to consider STIP.

“Ask them what they would do financially if they were off sick for more than 12 months - many people are.

“MPPI and STIP typically do not pay out for more than a year - some have a 24-month payment period).

“If your client has no strategy for downsizing their lifestyle, long-term IP should be considered. State benefits are unlikely to be sufficient to maintain the sort of lifestyle that an earned income supports.”