Life Insurance  

Provider enters protection market at time of need

Scottish Widows’ re-entry into the adviser protection market comes at an time of “urgent need” in the UK, with a decline in criticial illness and income protection take-up, its first report has warned.

In the six-page Protection Report: State and Private Welfare, the provider warned that only 8 per cent of people in the UK have critical illness cover, while a mere 4 per cent have income protection.

It claimed that both products have seen a decline in take-up over the past two years, despite the changes to state funding creating a wider gap between the income available from state support and a person’s regular income.

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The report said: “Our research found the average personal income a year in the UK was £21,500 before tax. But if an individual were to lose their income due to accident or illness, and received the disability living allowance – currently £7,000 – this would leave an income gap of £14,500 a year that would need to be plugged.”

Esther Dijkstra, head of protection for Scottish Widows, said that in general people avoided planning for the worst.

She said: “People are over-optimistic, and think that if the worst happens, the government will help them, or they can just cut back on their spending. But this is difficult to do and people do not have a buffer.

“Also, if you do have to go through something terrible like cancer, people will still want to enjoy life when they can, so cutting back is not always an option.”

Ms Dijkstra added that, as an integral part of their ‘duty of care’ to clients, IFAs should encourage them to consider protection.

She said: “Sometimes people just want to come to an IFA for specific advice, such as on a pension plan, and it is not always easy to move the conversation onto protection, but it is a growing need.”

Adviser view

Tony Larkins, managing director of Cambridgeshire-based Beacon Wealth, said: “As financial planners, when we see a client we talk about everything – their goals, aspirations and what to do if things go wrong.

“I think that most people who are advised, however, are the wealthier clients, possibly those approaching retirement and with a lot of money. These people are least likely to need income protection.

“The type of client that needs to protect their income are younger workers; lower-earners. These used to be helped by direct sales forces and now they are not getting served by advisers, a problem that has come about as a result of the RDR. Those who need advice most are not getting it.”