It’s been four years since Money Management last conducted a survey on income protection plans, but its return is very timely. In 2015, much was made about the ‘Seven families’ campaign to increase awareness of the need for protection.
Four years later, the message seems to be getting across. Advisers might be increasingly outsourcing protection decisions rather than offering plans themselves, but sales of IP are surging nonetheless.
Protecting clients and their loved ones in the event of death or serious illness has taken a backseat to pensions and investment planning for many intermediaries. And while consumers have been aware of the need to ensure their families can still pay the mortgage in the event of their death, protecting income in the event of illness, injury or other factors has been seen as less important for them.
This state of affairs is starting to shift. In the first three months of this year, IP sales jumped by 50 per cent, according to data compiled by technology outfit Iress – the highest year-on-year growth ever recorded. Just as significant is the fact that this followed a 36 per cent increase from 2017 to 2018.
This rise meant IP was the standout performer in what has been a hugely positive period for the protection market as a whole. Iress also found that total protection sales grew 10 per cent in the quarter compared with the same period last year, having also racked up notable growth in 2018.
Martin Shaw, chief executive of the Association of Financial Mutuals, says significant investment in technology and the marketing of IP in the past 18 months have been key drivers for this growth, but adds there are numerous other factors, too – including advisers’ own decisions to start referring customers to third parties.
He says: “We are also seeing a rise in the number of self-employed people who are potentially losing benefits from their employer, and there may also be uncertainty around Brexit. Along with the ongoing legacy of projects like Seven Families, these factors have all combined to increase sales generally, with a few mutual providers benefiting significantly from better relations with intermediaries and building a reputation for cost-effectiveness and service.”
Sowing the seeds
Other research outlines the importance of IP when measured against other protection products. Data from Royal London assessed the odds of a 30-year-old non-smoker who plans to retire at 65 being off work for two months or more. It found a 37 per cent likelihood for women, falling to 26 per cent for men. Meanwhile, the chance of contracting a critical illness is 13 per cent for men and 11 per cent for women, and the likelihood of dying is 4 per cent and 3 per cent, respectively.
The figure also emphasises the importance of consumers getting the right type of cover for their needs, as many confuse IP with CI and vice versa. IP aims to replace a proportion of the policyholder’s income, which will often be needed until they either return to work or retire. By contrast, CI aims to pay out a lump sum on the diagnosis of a specified illness and is, importantly, not dependent on whether the policyholder is fit enough to work. Therefore, CI policies should be used in circumstances where large sums are required, such as clearing debt or paying for specialist medical treatment.