Financial advice is often about compromise.
That is: compromise between the ideal solution and the practical one.
Protection, which can often be relegated to afterthought, is no different.
The industry recognises that it is the occurrence of certain “trigger” events which normally make customers aware of their need for protection.
This includes things like marriage, the purchase of a home, becoming a parent, or as has latterly been recognised, navigating the rental market.
However, while these events can raise awareness, they can also leave prospective customers with little spare time to spend understanding the protection product suite – and, perhaps more pressingly, little spare cash available to pay for it.
These factors can make the protection sale difficult, so advisers themselves will likely need to make compromises when advising clients.
Income protection – need vs. sales
In our experience, the biggest compromise we see is that income protection does not feature prominently enough in the protection solution.
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Income protection sales have traditionally represented a small share of the protection market as a whole – however, market penetration does appear to be gradually changing.
The number of new income protection sales in the UK increased from 96,889 in 2014 to 148,494 in 2018, representing 53 per cent growth.
While this is a positive sign, we believe this change is still happening too slowly.
A study from Unum confirms that 11 per cent of British people will be unable to work for six consecutive months or more during their working lives due to illness or injury – an alarming statistic in isolation.
But even more concerning given that the majority of British people have less than three times months worth of expenses built up in savings to fall back on.
These facts seem to imply that the majority of people should be purchasing income protection.
In fact, in a random sample of 90 users, and according to our protection rationale, we ascertained that 93.3 per cent of people had a justifiable need for income protection, whereas only 71 per cent had a defined need for term life insurance.
The relative importance of buying income protection in comparison to term life is echoed by the unpleasant truth that we are significantly more likely to suffer a sustained period of incapacity than to die during our working lives.
Men are six times more likely to suffer prolonged morbidity, and women are 11 times more likely.
And yet, term life sales continue to dominate the market, with term life-only accounting for 52 per cent of sales in 2018 (accelerated critical illness accounted for 31 per cent).
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