As a product and as a service, Income Protection can often be overlooked by customers despite its abundant benefits. For the UK public, the promise of securing their financial stability in the event they are rendered unable to work due to a serious injury or illness should be an exceptionally attractive proposition. However, this valuable protection solution suffers from poor exposure and public opinion for a handful of reasons. It is up to advisers to regularly discuss with their customers the benefits that income protection offers them, while also making sure they fully understand whatever risks may be associated with this kind of coverage. In this article, we will discuss all the major talking points around income protection so that the next time you open up conversations on the matter with your customers, you can ensure that they are walking away knowing just how beneficial this type of coverage can be.
What is Income Protection?
Starting with perhaps the most basic point, it’s worthwhile for any adviser to have a solid definition of what income protection is just in case a customer is proactive and asks themselves. So, what is income protection? Income protection is a form of protection insurance which pays policyholders a regular income if they are incapacitated and unable to work. The conditions for payouts will vary depending on which provider you work with as will the amount your customer will receive, which is important for your clients to know before agreeing to any one coverage.
Why is Having Income Protection Important?
Just from its definition, it should be evident to most just how useful income protection is, but some customers might still need some convincing. This is why it is essential that advisers stress what kind of problems can arise for customers if they are unable to work and what this type of stress can do for their recovery. An inability to stay on top of bills such as mortgage repayments and rent will be the primary struggle for most with those not covered likely having to rely on their savings to cover costs in the short-term. The problem with that is eventually savings will run out and then they will really be in trouble, finding themselves left without any source of income and now without any contingency funds also.
Why Do Some Customers Not See Income Protection As Worth It?
The challenge posing protection advisers currently is that, despite its numerous benefits, some customers simply do not see this type of insurance as ‘worth it’ or ‘necessary’. In fact, there are a few common myths held by the UK public which have contributed to their resistance to arranging an income protection policy, which we will look to dispel right here.
1. “PROTECTION INSURERS DON’T PAY OUT”
This is a common complaint not limited to income protection, or even protection policies in general. If a customer has little faith in their claim actually coming good, the incentive to take the time to arrange a policy and then commit their hard-earned income to repaying its premiums isn’t likely. The truth is however that in 2022 alone, over 15,900 people successfully claimed against their income protection policy, which was a 9% increase over the previous year.
2. “I’VE ALREADY GOT CRITICAL ILLNESS COVER”
Although critical illness cover is an incredibly useful policy to have, and another that should definitely be recommended to a customer seeking financial security if they are diagnosed with a serious illness, it does not mean income protection should then be disregarded. While critical illness cover will pay out after a serious illness diagnosis, it isn’t as comprehensive in its coverage when it comes to serious injuries or even some other medical conditions. The last thing a customer wants is a false sense of security thinking they are protected against all types of illness and injury when in reality that just isn’t the case. Being diagnosed with a mental health or musculoskeletal disorder for example would not qualify a customer for a payout under CIC, whilst it would for an income protection arrangement.
3. “I’VE GOT SAVINGS”
While a customer’s savings are there to be called upon in an emergency, they will only stretch so far. So, if a customer is ruled out of work and unable to earn their income for an extended period or even ever again due to conditions like ALS, policies such as income protection taking away the stress of wondering where their financial support will come from are invaluable. Much more so than the comfort of having contingency funds stored away within their savings.
4. “I CAN’T AFFORD INCOME PROTECTION”
Amidst a cost of living crisis, it’s no secret that everyone’s budgets are stretched. The fact of the matter is though, insurance is a necessary expense. Most of your customers will have some type of coverage they are already paying for such as home insurance, phone insurance etc. so they understand already that the benefits outweigh the costs and income protection insurance is no different. Unlike their other insurance policies however, income protection will be protecting their ability to earn a regular income.
5. “THE GOVERNMENT WILL HELP ME”
The argument against this is similar to that against relying on savings. While in the short-term this may provide some sort of financial support, it isn’t sustainable in the long term. The level of support your customer receives from their employer will vary depending on what type of benefit packages they offer, so it’s important your customers know what to expect in this regard. Again though, if their illness or injury prevents them from returning to work for an extended period then alternative arrangements must be made.
If your customer is self-employed then statutory sick pay will also not be applicable for them as they would not be eligible for this form of benefit.
6. “I DON’T HAVE ANY DEPENDANTS”
Income protection isn’t just about protecting a customer’s beneficiaries, it’s also about protecting them. Even if your customer isn’t working to provide for a partner or children, they are still working to provide for themselves and to set themselves up with the best quality of life. Without their income, it will therefore be them who suffer.
How Do You Overcome Customers Barriers to Income Protection?
A recent survey showed that 50% of the participants held the belief that income protection is important. Despite this, only 6% actually had a policy in place. So how are advisers to proceed in engaging their clients more effectively so that their conversations on the policy lead to more actual arrangements? Two primary approaches have arisen in recent times which top advisers are swearing fealty to. How you choose to tailor them to your individual approach is completely down to you.
Repositioning Income Protection in the Customer’s Mind
The first technique involves moving discussions on the coverage away from the costs it incurs for clients and more towards the good outcomes it delivers. Making your client clearly see that the financial cushion income protection affords will lead to them being able to live a completely different life than if they didn’t choose to take out a policy is essential to reframing income protection for clients. Rather than focusing on the challenges of paying back premiums and potentially cutting costs elsewhere, illustrating just how much more difficult things would be to maintain their standard way of living without a stable income will allow clients to definitively see how these types of policies underpin and protect their long-term plans.
Emphasising Lifetime Value in Conversations
One of the problems with arranging protection policies such as income protection, but also for life insurance, family income benefit etc. is that it’s hard to position the coverage as something tangible until it actually pays out. Top advisers however have begun working against this by introducing quantifiable assets into the conversation, showing their clients their total earnings potential compared with the lifetime value of their other assets. This really enforces the idea that their earnings potential is actually their most valuable asset and is actually what allows them to finance the other assets they once deemed as so essential. With their earning potential now the cornerstone of their financial planning, income protection becomes seen much more as a necessity than an optional expense to consider.
