Reduced welfare spending, an ageing population and increasing financial insecurity among Britons makes it necessary for some form of income protection.
Clients who think the worst will not happen may not be financially prepared for it when it does, either because they have not taken out individual income protection (IP) or taken advantage of whatever group income protection (GIP) their employers offer.
But for those in work, Andy Simmons, senior income protection specialist at VitalityLife, calls it: "Probably the most important protection product to buy.
"The retreat of the welfare state makes it very important to have a safety net in place. The state may provide the bare minimum to survive, but to maintain their lifestyle, clients need their own policy, especially if they are self-employed."
Compound the lack of insurance with a lack of savings, and it is clear there is a need for proper financial protection.
Katharine Moxham, spokesman for Group Risk Development, comments: "Latest findings from the Money Advice Service highlight 21 million UK adults do not have even modest savings of £500 to replace a fridge or mend a car.
"Three-quarters of these do not have a savings buffer equal to three months' salary. On top of this, working-age people often overestimate how much the state will support them and their family in the event of ill health or disability."
Problems for individuals
As Nick Homer, group protection manager for corporate propositions at Zurich, says: "Low take-up of income protection presents a real and growing challenge in the UK to individuals and their families, for employers and the government."
His comments have been borne out in a report in October 2016, produced jointly by the Chartered Insurance Institute (CII) and the Income Protection Task Force.
According to the 37-page report, Building Resilient Households, one million people in the UK suffer a prolonged absence from work due to sickness each year but only one in every 10 have some form of insurance.
As a result, the report stated: "Many families suffer financial hardship and lasting damage when there is a prolonged absence from work due to sickness."
Moreover, the report found there were several factors that could exacerbate the financial hardship of being out of work due to illness, all the while the mortgage, bills, household expenses, school fees and other associated costs of living have to be met each month.
Findings from the report included the following:
- Most people have to rely initially on Statutory Sick Pay (SSP) of £88 a week. SSP is not available to the self-employed.
- Up to half a million would find their savings run out after just a few weeks.
- State benefits assist some people but often the payments aren’t enough to help them meet inescapable commitments.
- Household resources are strained. Rising housing costs, ‘generation rent’, student loans, auto-enrolment into pensions and reliance on the ‘Bank of Mum & Dad’ mean household budgets are likely to remain under pressure for most families.
Iain Clark, distribution and marketing director for British Friendly, one of the co-sponsors of the report, says: "This illustrates the crucial role income protection plays in protecting people, as well as the major potential the income protection market offers to advisers."
State disability benefits
For advisers who do not advise on protection, believing the state will provide for their clients should the worst happen is wrong.