Income Protection, or Permanent Health Insurance as it was previously known, has evolved with the times since its introduction in the late 1800s to support agricultural workers in the South-West of England.
So how is it evolving and are we getting the most out of it, both propositionally and in practice?
Over recent decades, the evolution of how morbidity-linked policies have been constructed to facilitate the ability to protect income, both in sickness and in health, extends beyond the scope of purely Income Protection.
It also extends to: Personal Sick Pay; Accident, Sickness and Unemployment; Mortgage Payment Protection Insurance; and on the flip side, the mortality-linked Family Income Benefit policy to provide a legacy or financial protection for the life assured’s family.
All of these propose several options such as guaranteed or reviewable premiums, level or inflation-linked cover, short/long-term cover, various benefit periods, deferred periods – the list goes on.
The external perspective
That is the internal perspective – then there is the external perspective; the offerings, or the ‘val-YOU’ propositions. The market has become fiercely competitive over the last 12 months, rendering due diligence on providers and their propositions a frequent task, which in a lot of ways is beneficial because it shows the market is competing and adapting.
While the cost is a vital factor when considering a policy for a client, service, underwriting, and additional benefits are also growing in importance, if not only to satisfy the FCA’s Product Intervention and Product Governance Sourcebook (PROD) Rules.
It is now unusual to find an income protection policy without a mental health and wellness benefit of some kind that extends to all members of the family thrown in at no extra cost.
In addition to providing a platform to mitigate the financial burden on our lives if the unthinkable happens, insurers are now helping our clients to rebuild their lives.
The market has shifted from simply providing income to retirement age to helping the insured get back to work beyond the mere notion of recuperation benefit, proportionate benefit, hospitalisation, and physiotherapy benefits, but with the means for the insured to learn a new vocation should they be unable to continue with their pre-claim occupation.
While not wholly linked, this help is surely a welcome addition in light of recent unemployment and redundancy figures.
For perspective, redundancy in 2020 hit a record 370,000 between August and October 2020 and now at around 4.9 per cent, although the furlough scheme, which is protecting jobs, has been extended to the end of September.
The protection gap
Let us address the protection gap. I have always found the ‘Deadline to Breadline’ report issued annually by L&G to be a useful starting point for understanding where we are individually but financially as a nation. In 2014, the report showed that if a household’s income suffered an unexpected shock and suddenly stopped, people in the UK would have an average of just 29 days before their money would run out.