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Resuscitating income protection

Resuscitating income protection

The UK population does not protect itself against loss of income due to unemployment, illness or accident like it used to.

Some two decades ago, the streets were regularly visited by ‘the man from the Pru and Pearl’ – door-to-door salespeople with a brief to sell as many protection policies as possible.

However, as financial services evolved and regulation became more stringent, the business model became obsolete, so ushering in a new era for protection sales.

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In 2005, product providers were required to provide the industry watchdog transaction level data on all sales of certain pure protection products, as well as regulated mortgage contracts, retail investment products to retail and private customers.

The latest figures for the first half of 2015 indicate that the downward trend is likely to continue, with only 241,809 of such policies sold.</p><p>The outlook for financial protection appears more optimistic if the sale of life and term insurance is taken into account.

The latest instalment of Swiss Re’s Term &amp; Health Watch revealed that a total of 1,683,841 new-term, whole-life, critical illness and income protection policies were sold in 2015 – a year-on-year increase of 0.9 per cent.

However, an unnamed industry product provider quoted in the report said: “While the need for appropriate financial protection has never been greater; the market is currently in a phase of decline, and losing consumer, government, third-sector, media and financial adviser trust.”

Emma Thomson, life office relationship director at life insurance agency LifeSearch, said: “Most consumers do not understand the likelihood of being ill long term, becoming disabled, being diagnosed with a critical illness or passing away early. Some just don’t want to think about it.

“There is also a common misconception that the welfare state or their employer will look after them sufficiently if it does. Many of our clients have no idea what they’d get in sick pay or benefits when asked, with many of these vastly overestimating what they might receive, especially when it comes to sick pay.”

The study also revealed that while the directly authorised distribution channel – which includes IFAs – still makes up the lion’s share of distribution of individual term and critical illness, the number of policies sold in both categories fell in 2015 by 2.6 per cent and 4.6 per cent to 868,629 and 304,629 respectively.

The protection business, which has traditionally been the foundation of effective financial planning, has seemingly been relegated to obscurity by many advisers who tend to give greater focus to investments and pensions marketplaces.

Innovation

It would appear that the industry providers have taken steps to make protection more palatable for consumers and intermediaries alike.

In early August, AIG Life launched Key3 – a stripped-down critical illness product which covers against what it considers to be the three most common debilitating conditions: cancer, heart attack and stroke.