One of the age-old problems with recommending income protection is that people do not think they need it.
Objections include the following:
- It won’t happen to me.
- It’s too expensive.
- My partner earns more than me.
- I earn so much I don’t need it.
- I have pensions and/or investments.
Let’s take these one at a time. One in two people will now develop cancer at some stage in their life.
Income protection is generally more pricey than life insurance, because you are far more likely to be ill and unable to work than die at an unexpected age.
It is a harsh reality, but you cannot rely on your partner for long-term financial security. Relationships break down and partners become ill and are unable to work. They can also die when you least expect it.
Big earners earn lots, but that does not mean they are not going to feel the shock of going from earning £10,000 a month to statutory sick pay.
Investments and pensions are great, as the whole point of them is to create financial wellbeing. But there is a big flaw in thinking of these as the ultimate or only solution for long-term financial security requirements.
I have a protection insurance training course and there is a section where I talk about income protection, specifically bringing cash flow modelling into the discussion. In each of the scenarios previously mentioned, I would suggest that the use of cash flow modelling could help someone to see the importance of income protection (consumers and advisers alike).
You could make a perfect financial plan for a client; you could have them set up to retire at age 50, with a pension that is going to allow them to be pretty comfortable for the rest of their lives. But what if they fall ill and can no longer pay into those pensions and investments five, 10 or 20 years earlier than you have forecast?
The financial plan crumbles. The reliance upon state benefits and pensions becomes reality, and the need to try to re-enter the workplace and retire at a much later age becomes a necessity.
Not everyone has the access or the know-how to use cash flow modelling software. It is incredibly powerful as a visual representation, but there are other things that you can do.
Without scaremongering, ask your client what plans they have in place if they fall ill and are unable to work for some time. Show them how much statutory sick pay and disability benefits are. It is not just about whether or not they can make ends meet – it is also about whether or not they want to maintain their current standard of living.
Last week it was the IPTF’s Income Protection Awareness Week. This could be a useful opportunity for advisers to pick up lots of ideas that could help with income protection discussions.
Ultimately, if you are advising a client, and you do not discuss the very clear risk of their falling ill and being unable to work, and do not recommend income protection, are you truly addressing the financial risks that they face?
Kathryn Knowles is managing director of Cura Financial Services
