Protection 

Addressing the barriers to income protection sales

  • To be able to list the barriers to buying income protection.
  • To understand what advisers find difficult about the IP discussion.
  • To ascertain how to advise clients with different protection needs.
CPD
Approx.30min
Addressing the barriers to income protection sales

The principal barriers to sales of income protection insurance (IP) are that clients are more interested in life and critical illness cover, and that IP is perceived to be too expensive.

This is according to the latest research done among advisers by Defaqto.

Previous studies had shown that, of all the main protection products, IP is sold least and we wanted to understand why this is the case. We offered the respondents nine broad reasons to choose from with the option to add reasons of their own (other).

There were 848 responses, on average 2.9 reasons per respondent, and the results are set out in the following table:

Table 1: Previous studies have shown that of all the main protection products, income protection is sold least, why do you think this is?

Other10
Financial underwriting is too complicated27
Clients don't think it will pay out when they need to claim69
It is too expensive71
Clients think state benefits will be sufficient if they were unable to work long-term80
Advisers don't focus on it as much as other protection policies92
Clients don't think they will ever need to claim for sickness or disability95
Clients think their employer will cover them106
It is perceived to be too expensive148
Client are more interested in life and/or critical illness cover and can't afford both150

Source: Defaqto Limited, Life & Protection Service Study 2017.

Given the low level of financial literacy among the population in general, the strong response to this option begs the question: ‘How do they know which cover they should have?’ 

A product-driven approach that assumes life and critical illness cover addresses most people’s protection needs, may not deliver the most effective solution. Establishing a hierarchy of needs for protection within the adviser firm maintains a consistent proposition and helps individual advisers frame their recommendations. 

The following table sets out an example of a hierarchy of needs for protection advice.

Table 2: Hierarchy of needs

Client scenario

Priority 1Priority 2Priority 3Other options
SingleIP to protect income if you cannot workCIC to provide a lump sum in case of serious illnessPMI to provide prompt medical treatment if illWhole of life to cover funeral costs
No dependants
SingleLife assurance for debt protection and IP protect incomeCIC to provide a lump sum in case of serious illnessLife assurance (FIB) for lifestyle protection for dependantsPMI to provide prompt medical treatment if ill
With dependants
Married/PartneredLife assurance to protect joint loans/debtsIP to protect income if you cannot workCIC to provide a lump sum in case of serious illnessLife assurance for lifestyle protection. PMI for prompt medical treatment
No dependants
Married/PartneredLife assurance to protect joint loans/debtsIP to protect income if you cannot workCIC to provide a lump sum in case of serious illnessLife assurance (FIB) for lifestyle protection. PMI for prompt medical treatment
With dependants

Source: Defaqto

What is most noticeable in this simplified example is that an IP recommendation features as the first or second priority in all four broad scenarios and, in all cases, ahead of critical illness cover. Perhaps advisers need to better articulate the risks that apply to particular client scenarios.

Many disability claims are attributed to musculo-skeletal complaints and mental illness, neither of which are covered by a critical illness policy. Critical illness is therefore often not suitable for protecting clients against being unable to work. 

It is perceived to be too expensive

This perception is most likely informed by a comparison with the typical costs of other long term protection products, for example, life and critical illness cover, but this isn’t an easy comparison to make.

Consider a 25 year old male in good health purchasing an income protection policy with a monthly benefit of £1,500 per month until age 68, his retirement age. At current rates this would cost on average just £28 per month.

If, at age 30, he suffered an accident and was unable to work long term, the policy would potentially pay out for 38 years, a total amount of £684,000. 

Had he instead purchased life and critical illness cover, assuming modest long term investment rates of 5% per annum, he would need a lump sum benefit in the region of £300,000 to meet this need. At current rates this would cost approximately £76 per month; two and half times more expensive.

CPD
Approx.30min
  1. According to Mr Heffer, what should adviser firms establish?

  2. Which of the following is not covered by a critical illness policy, according to Mr Heffer?

  3. What does Mr Heffer say is difficult to believe?

  4. Mr Heffer says most people do not understand what?

  5. According to Mr Heffer, IP is not simply about the insurance but also about the claims support and early interventions. True or false?

  6. What does Mr Heffer say is the key to improving sales?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To be able to list the barriers to buying income protection.
  • To understand what advisers find difficult about the IP discussion.
  • To ascertain how to advise clients with different protection needs.

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