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Cinderella syndrome

For many years, we have referred to income protection as the

Cinderella product. Although the need that it meets is obvious, it

has never really been very successful.

It has often lost out to critical-illness cover, even though the two

products are complementary. But Cinderella will not go to the ball

unless we overcome some of the perceptions that some consumers, and

indeed IFAs, have about income protection.

We have been doing a great deal of consumer research over the last

year. When people start to talk about their lifestyles – mortgages,

where they like to go on holiday, their spare time, what they buy for

their children – on almost every occasion, protecting their income

becomes much more important to them.

They can see how important it is because it does not take much to get

them to realise that income is the foundation of everything that they

do in life and they can see the problems they would face if their

income stopped.

They can understand and appreciate the need for income protection but

they are not buying it and in many cases they are not even being sold

it. Why is this? Feedback suggests that the product is too complex,

riddled with tricky definitions and fiendish exclusions and there is

a difficult underwriting and nightmarish claims&#39 process.

It is possible, however, that much of this negative feedback is more

perception than reality. Let us take a look at these issues in more

detail.

Over the last few years, companies&#39 underwriting has become

increasingly innovative to ensure that policies can go on risk as

soon as possible. Online underwriting and expert underwriting

programmes are also making the process easier.

We have also seen great improvement in the clarity of definitions and

exclusions. Getting rid of the jargon means a greater chance of

customers buying the products.

Definitions are now easier for the customer to understand and should

be less of a problem at the claim stage.

Some clauses that have hindered sales are disappearing from

income-protection policies. This has to be applauded from the

customer&#39s point of view but it points to the need for more

development in this area.

Greater clarity will let clients know exactly what is covered and what is not.

So, if the underwriting is easier, the definitions clearer and there

are fewer exclusions, why does inc-ome protection still not sell as

well as critical-illness cover?

Some say that critical-illness cover is easier to und-erstand and

that the sales message is very simple – if you get one of this list

of illnesses, you will get some money. I am, however, not convinced

that, compared with income protection, critical-illness cover is a

simpler product.

Some of the reasons given for why income protection does not sell

also apply to critical-illness cover, which does sell. This point of

view really strengthens the argument that inc-ome protection and

critical-illness cover should be sold as complementing one another.

Whether it is sold alongside critical-illness cover or not, there are

many sales angles you can use to position income protection as an

important foundation to your client&#39s financial plans.

For example, think about your client&#39s pension planning. If he or she

became ill and could not work, then the premium waiver on their

pension plan would make sure that premiums would continue to be paid

to keep the investment on track for the target retirement income.

But premium waiver may not be enough if your client is not getting

sufficient income from elsewhere. If they cannot afford to wait until

their normal retirement date to retire, they may be tempted to take

their pension early, meaning that the retirement income would be much

reduced. Income protection could prevent this from happening.

Another angle is to position income protection (combined with

critical-illness cover) as “ambition” protection. Most people have

ambitions, for example, to retire early and travel the world.

Alternatively, it may be to move abroad and open a business or do

something hedonistic such as save to buy a classic car.

As we know, savings and investments are often the key to realising

ambitions. They are, therefore, very valuable and it is important to

ensure they are protected. Investors can protect themselves from the

unpredictability of the stockmarket by investing in protected or

guaranteed funds.

Without financial protection, the only option following illness may

be to tap into those savings and inv-estments. That could mean that

the ambitions would be more difficult to achieve.

So the need is there for income protection and many people understand

the need. The product is getting clearer and people will buy it if we

paint the right pictures. Building upon the success of

critical-illness cover and putting income protection forward as a

natural complement could also maximise the business potential.

Cinderella will go to the ball if we really want her to.

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