We happily buy Life Assurance, Buildings and Contents Cover – it’s compulsory if you have a mortgage; Motor insurance – it’s the law of the land and even Pet insurance – simply because we love them!
However, few of the UK population have Income Protection Cover, the very thing that is designed to maintain our lifestyle and even at a basic level, the ability to continue to feed and clothe ourselves and our families.
As a result, a worryingly a large proportion of us have no provision for loss of income because of illness!
I am told that some people rely on their employer to stand by them when illness strikes. You may be lucky and get paid for the first three, six or 12 months of your incapacity. Other than this, Statutory Sick Pay is the only payment which your employer is obligated to pay and SSP is little more than subsistence level. And if you are self-employed, you have absolutely no financial help whatsoever.
As a result, it’s clear that the argument for Income Protection Cover is most compelling. Every home should have one, or two if you both work.
Financial advisers are required by the regulator to consider all aspects of their clients’ financial situation and wellbeing. So, why is this basic advice often overlooked?
An interesting reply to this query that I have heard from both advisers and their clients is that Critical Illness cover is a feature of the Life Cover. This is a basic misunderstanding of both the needs of the public and the features of the respective products. Critical Illness cover does not replace income protection. Critical Illness cover is of no use to the taxi driver who breaks an ankle and is off the road for six weeks. Consider the factory worker with asthma, or one requiring a hip replacement. Consider a long term nervous complaint. These conditions are common and Income Protection is designed to give the peace of mind that workers need – particularly in the current economic climate.
Surely Income Protection products must form the basis of any sound financial plan.
To convince the public and advisers that Income Protection is a must, the product must be simple, easy to explain, affordable and genuine claims must be paid. The product could not be simpler. Income is replaced when illness strikes. But people have differing needs. Some of these are obvious at application stage and the skill of the adviser is to match the cover to the client.
The diverse needs of the self-employed and PAYE clients are obvious, deferred periods to match the employer’s policy on sick pay, level of cover and exclusions can all be accounted for. The unknowns are the period of incapacity and the capabilities after recovery – making the definition of cover a crucial decision based on these unknown factors. Broadly speaking however, the standard of cover increases with the premium and in a price sensitive market, a balance must be struck. My point is that despite these unknowns, the protection of income is a vital consideration in the financial planning process for all and that products must, inevitably, be made more simple and flexible to suit the diverse and changing needs of clients.
