How to help clients protect their income

How to help clients protect their income

Failure to protect income in the event of disability or illness poses a significant challenge, both in mature and emerging economies.

The need for such protection is acute and rising. In the developed world, demand for government support (the traditional source of relief) is rapidly outpacing supply.

At the same time, illness and disability levels are rising due to an aging population, tighter labour markets and improved medical prognosis.

For families, the impact of illness or disability on income can be pretty devastating.

But not only individuals and households suffer. Income protection gaps can also profoundly affect businesses, governments, and the economy as a whole, undermining productivity and eroding social ties.

Mindful of the challenges, Zurich and the Smith School of Enterprise and Environment at the University of Oxford have embarked on a major global thought leadership programme to study income protection gaps (IPGs).

The project has three phases with the first, Income Protection Gaps: A Growing Global Challenge published in 2015, exploring why income protection gaps are becoming a global problem and to what extent.

The second phase, Understanding Income Protection Gaps: Awareness, Behaviour, Choices published in 2016, looked into why income protection gaps exist with an analysis of the causes of flow and demand for protection products covering 11 key markets over five continents.

The final part of the project is due to be published in the autumn and will make recommendations for action focusing on the role of the state, employers, individuals and insurers. 

We aim to gain better insights into the key challenges by learning about people’s awareness, knowledge, and experiences of income protection insurance.

One of the key findings of the latest survey (Understanding Income Protection Gaps: Awareness, Behaviour, Choices) is that income protection needs differ across countries, demographics and for individuals.

The information has relevance both for those seeking to protect themselves and in many cases their employers. We know that working through an illness or disability due to inadequate support can cut worker productivity by 20 per cent to 60 per cent.

Other key findings from our most recent study include:

Experience plays a greater role than financial literacy

One of the most important findings was that having first-hand experience, or (to a lesser extent) knowing someone who has had such experience, was one of the biggest factors influencing demand. Experience trumps formal or abstract knowledge of insurance.

Misperceptions about the cost of income protection

The main reason people cited for lack of income protection insurance was a perceived high cost. Nearly a half (48 per cent) of UK respondents said that they would be willing to spend 5 per cent or more of their income on cover when in fact such protection can regularly be bought for significantly less. 

Full-time workers are more likely to be insured