Five ways financial advisers add value: Income Protection

Director of Drewberry, Tom Conner, reveals some key reasons why financial advisers are so important in highlighting the need for income protection and communicating its value to clients.

A recent article in The Times by Ali Hussain (subscription needed) provided an example of where things can go wrong with financial protection. Since then many advisers have responded with numerous examples of where protection insurance has been a financial lifeline for clients, such as in this article from Professional Adviser.

1. They talk about income protection

If the first rule of Fight Club is you don’t talk about Fight Club, the first rule of income protection is you most certainly do talk about income protection!
The vast majority of people have heard of life insurance but far less people have heard about income protection, despite it being more likely to pay out because clients do not need to develop a specified illness or condition type in order to make a claim. As advisers, we have relationships with clients and are therefore in a prime position to raise why income protection is so important. If you’re raising awareness, then you’re already adding value.

2. They get the policy options right

Advisers help tailor the policy options to a client’s specific circumstances, such as:

• Level of cover – Help the client to tally up their essential expenditure to reach the ideal cover level and explain that (with a personal policy) the pay-out is tax free.
• Set the right deferred period – Align the deferred period with how long the client can wait before they need the payments to start. Can they rely on sick pay and/or savings for a period? The longer the deferred period the lower the premiums.
• Pay-out length – Many DIY buyers opt for short-term one or two-year pay-out plans because they don’t have an adviser explaining why it’s often worth paying the extra premium for long-term protection (using average pay-out statistics can help to drive this home).
• Indexation – I doubt many people would even know what this is without the help of an adviser. Is it important to help clients maintain the purchasing power of their policy? Yes.

3. They make a clear warning about future income

One of the most common areas that income protection claims go wrong is when a client goes to make a claim but doesn’t have sufficient income to qualify for the level of cover they’ve insured (and been paying premiums for) and ends up with a reduced pay-out.

Insurers will typically only cover 50-70% of gross earnings (PAYE income for employees and profit before tax for sole traders), so if the client is insured to the maximum and their income falls in the future then they could be over-insured. It is vital for advisers to ensure that the client’s level of cover is within the insurers limit from the policy outset and explain why it’s important to get back in touch to review the policy if their income ever falls.

4. They talk about additional benefits

Protection insurance is far more than just insurance these days. Many plans come with an array of additional benefits that clients can use from right away, thus providing immediate value.

For example, busy families can make use of remote GP and prescription services. Another common benefit is discounted gym membership. With Vitality it’s possible to get up a whopping 50% off the likes of Virgin Active and Nuffield Health. There are often counselling and/or remote physiotherapy benefits that can be used by clients, even if they have pre-existing medical conditions. Without an adviser these benefits often get overlooked.

5. They overcome common misconceptions

There’s plenty of research out there showing that consumers are full of misconceptions. For example, research by Drewberry in March 2021³ found that 68% of (working age) people thought the cost of life insurance had increased as a result of Covid-19 and 44% of people believed that insurers paid out less than 50% of Covid-19-related life insurance claims. This could not be further from the truth.

Often it takes an adviser to show people that protection doesn’t cost a fortune and to provide reassurance that insurers really do pay claims for them to take the plunge.

Find out more about why income should be one of the first things your clients protect and how financial advisers can help.

Sources:
1. https://www.covermagazine.co.uk/news/4033944/iptf-launches-consumer-facing-money-awareness-brand
2. https://www.covermagazine.co.uk/news/4033296/iptf-launches-income-protection-awareness
3. https://www.drewberryinsurance.co.uk/knowledge/research/pandemic-covid19-protection-survey-2021-q1