Here’s a puzzle: why do so few customers buy protection cover? It is estimated that just one in ten have critical illness or income protection in place.
This can’t be because of poor payout rates. These have increased significantly in recent years, due in part to concerted action by the Association of British Insurers (ABI). Latest figures show that more than 90% of all protection claims in the UK are now paid. This means insurers are paying out £9m a day to families coping with illness, injury or the death of a loved one.
But perception appears to lag behind this reality. Recent research suggests that consumers believe that only 50% of claims are paid.
So what can advisers do to challenge these misconceptions?
Kevin Carr, an insurance expert at Carr Consulting, says that it’s important that advisers don’t shy away from more uncomfortable discussions about ill health or death, which can still feel like taboo subjects. It might be easier to talk about positive investment returns and retirement plans, but these should be built on the solid foundations of adequate insurance.
He says: “Families rely on their income to make these savings and investments – as well as pay essential bills. If you don’t protect it, then you’re potentially jeopardising these future plans.”
Huw Evans, the ABI’s director general, believes advisers have a key role when it comes to building confidence in these products, and tackling the ‘protection gap’.
The risk of not having cover
Clearly, advisers need to have the right statistics to hand. Many people take the ‘it won’t happen to me’ approach without being properly informed of the risks.
A 30-year old man, for example, is twice as likely to suffer a serious illness as he is to die before the age of 70. The same individual also has a one-in-three chance (32%) that ill health will force him to stop work for at least two months at some stage.
Paul Roberts, head of protection at Old Mutual Wealth, says: “Advisers can help demonstrate to their clients that they face very real risks. But this isn’t about scaremongering. It is working with advisers to help them recommend practical and affordable ways to help.
A more complex product landscape
Of course, advisers have to explain how these different policies work, what conditions they cover and how payouts are structured. There is a variety of different types of CI and IP plans, with some offering ‘severity-based’ payouts, where the size of the payout depends on the exact diagnosis.
Roberts says advisers also play an important role in helping their clients ensure full disclosure is made during the application stage. Failure to disclose minor conditions, or even a visit to a GP, can lead to an invalidated claim or reduced payout.
He says: “It’s vital for a client to disclose everything, not just at the application stage, but at any time up until the moment their plan is put ‘on-risk’.
This can be daunting for individuals, but advisers can guide them through this process, ensuring all questions are answered accurately and fully.
It’s also important that advisers regularly review these policies, in the same way they’d review an investment portfolio, to ensure it still meets the client’s needs and that their situation hasn’t materially changed.
Roberts believes that: “There is now a range of reliable and affordable protection policies on offer from all the leading providers. Advisers can help their clients select the most appropriate combination of benefits – be it life protection, critical illness and/or income protection, as well as the most appropriate combination of providers.
Suggesting protection to a client may be one of the best pieces of advice you give.”
After all, protection isn't just about today – it’s about protecting the future.”