"Customers are rightly focused on whether they could keep paying their mortgage, bills, and other essentials should their income stop. That makes the advice conversation even more important."
- Craig Hall - LSL Financial Services
A new survey by LSL Financial Services has found that the rising cost of living is creating more customer need for income protection (IP), but making it more difficult to afford, leading to an affordability paradox.
The survey, conducted among brokers at the inaugural LSL Protection Forum in May of this year, found that 86% of respondents see IP as the area of greatest customer need, far ahead of critical illness cover at 7% and life-only term assurance at 5%.
Two-thirds of brokers surveyed said the cost of living, including bills, food and energy, was having the biggest impact on customers’ financial confidence, significantly ahead of mortgage rates and borrowing costs, cited by 15%.
However, the same financial pressure appears to be making protection harder to put in place. 64% of those at the forum said the primary reason customers are currently citing for declining protection is price or affordability, with household budgets too tight because of other costs.
When asked how customer demand for protection was changing in the current economic climate, 57% said there had been no real change, and 8% said demand was decreasing. However, 35% said demand was increasing, suggesting that more customers are becoming aware of the need to protect their income.
LSL FS said the findings point to a difficult advice environment in which customers may have a clearer need for protection, particularly income protection, but less room in their monthly budgets to act on it.
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"Findings from our Protection Forum last month showed an emerging paradox. On the one hand, the cost-of-living squeeze is making income protection more relevant. On the other, it makes affordability the biggest barrier to putting that cover in place," Craig Hall, director of strategic partnerships at LSL Financial Services, said.
"Customers are rightly focused on whether they could keep paying their mortgage, bills, and other essentials should their income stop. That makes the advice conversation even more important.
"When budgets are stretched, brokers need to help customers look beyond the monthly cost and understand what they can realistically protect, where the biggest risks sit and how cover can be shaped around their individual circumstances.
"It is encouraging that a third of brokers are seeing protection demand increase, despite the pressure on household finances. But the affordability challenge is real, and there is more work to do to help customers understand their options and build the right level of protection around what they can afford."
