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The need for income protection is clearer than ever

19th October 2020

The events of the last six months have seen individuals, families and businesses facing unprecedented challenges. That is as true for the clients of IFAs and mortgage intermediaries as anyone else.

There has been an understandable desire to get back to normal or as near to it as possible with the return of schools an important milestone. But there is also a strong sense that many people will have taken the opportunity to re-evaluate their priorities.

This will not be exclusively financial, but it is likely to be an important aspect of any reassessment and may be an important feature of client reviews.

For good or ill, many working families and particularly the main earners will have had a stark reminder of just how important their income is and how any interruption to it brings all sorts of stresses and pressures.

It is likely to be particularly true for those without substantial investments or significant cash savings to call upon.

Occupation

For several months, many occupations carried an elevated health risk.

That obviously applies in healthcare and policing but was probably much more unexpected in transport. At least, even the fit and healthy will have confronted the risk of getting ill and not being able to work and even not being allowed to for a period.

We know the virus can have a considerable impact on those with underlying health conditions, is leaving some nasty aftereffects, and that some people may struggle to get back to normal for some time.

Others may have been confronted - for the first time - with the prospect of a dramatic fall in their incomes.

State support?

We are now increasingly familiar with the different ways in which this can play out - including being furloughed - the £2,500 a month cap could easily have represented a significant fall in the amount coming into a household - but also because many will not have been able to continue to generate income in their small business or as a self-employed person. They may have faced the prospect of redundancy and indeed as furlough comes to an end this is a prospect for many.

If you have been laid off and are skilled in a sector where you are simply not able to find work for now, it is probably going to lead to some soul-searching along with the financial strain.

We also think that a significant extra number of people will either have experienced the welfare system or at least had to consider applying for benefits - and now understand the relatively small payments, the complications of getting help with housing costs and often the weeks to wait before you see any money.

There is also the fact that means-testing reduces benefits for those with savings of more than £6,000 while those with £16,000 cannot access them at all.

Changing perspective

My view is that many of these issues will now be much clearer in clients' and future clients' minds as they assess their debts, the income and their savings and some will even be talking these challenges through with their family and friends.

That seems to be borne out by some of the protection portals reporting a significant increase in income protection inquiries.

No-one is suggesting that what I have outlined in the previous few paragraphs all goes into some sort of shocking Mailchimp campaign or social media communication.

The broader protection insurance industry and certainly intermediaries know their clients well and understand what works and what doesn't work. Most have always shunned shock tactics.

Communication

At the same time, we think it should be possible to find ways to promote and market income protection and to reframe existing conversations because it is likely to be on people's minds as they review the events of 2020.

We need to choose the language carefully but at the same time be frank with people about the situation.

Many clients are likely to be talking about these issues anyway.

Having begun the discussion, we think advisers are perfectly placed to move things on to the merits of income protection, because it deals with many of clients' current concerns about not being able to work, facing a significant cut in their income and spending and having to run down savings.

One aspect of those conversations may include furloughing. It has operated as a kind of income protection but what for example if it isn't on offer next time.

We believe such conversations could still focus employees' minds on the sustainability of their income.

IP is increasingly competitive and has likely proved its worth in the current crisis. It can be tailored to particular occupations and circumstances and can meet most budgets.

It is now likely to be a solution to a set of problems which are front of clients' minds.

Long-term planning

One final point, as the return to school brings more of a sense of normality.

We expect that in the next few months, there will be big discussion about resilience for individuals, families and businesses given the experiences of recent weeks. That will include politicians, policymakers, chief executives and other members of what you might call the great and the good.

However, we think the most important change may be in the attitude of many members of the public and certainly from those likely to be your clients. It may involve a permanent change in mindset and to thinking longer term.

That could give us ‘permission' to talk about income protection with greater urgency for many months if not years to come.

That is something we intend to keep communicating with advisers and brokers about. You have the best understanding of clients' needs and concerns and what messages work best especially if we see a permanent change in attitudes.

Cover Magazine

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