Now the economy has struggled meekly out of recession, the world of protection advice is presented with both good and bad challenges. Aviva’s recent research, which highlights the increase in people off work long-term through stress, brings home the need for income protection more than ever while anecdotal evidence suggests consumers are more protection-conscious than ever.
Running against this is the economic impact of growing consumer indigence, which must lead to higher lapse rates and more applications not being taken up. To take advantage of the positive opportunities we need to minimise the bad. One area where the industry is making great strides in offering premium reductions when health exclusions are added to critical-illness and incomeprotection policies.
It is not uncommon for consumers to have one or more illnesses excluded from their protection policy. In fact, it happens in around 10-12 per cent of critical-illness and income-protection applications.
A condition that has been excluded cannot be claimed on, which in effect reduces the comprehensiveness of the policy, so it makes sense that the premium should also be reduced. Bupa was first to offer premium reductions for exclusions followed by Fortis, which extended it to incomeprotection products, too.
Since LifeSearch began campaigning for all insurers to follow suit last February, LV=, Legal & General, Zurich, Axa and most recently Aviva have started their own offering. Aviva also offers premium reductions for spinal and mental health problems on its income protection policy.
Sadly, not every insurer will do this and clients with exclusions added to their policy can be paying the same premiums as someone without any exclusions.
Consumers should be aware that if they take out a policy and a significant exclusion, such as for cancer, is imposed, there are insurers who will cut their premium so there is no need to pay over the odds for a policy that cannot be comprehensive.
Life offices offering these discounts will undoubtedly have an advantage over those that do not in the eyes of good protection advisers. Overall quality of the product is the main consideration but it stands to reason that when there is little to differentiate between policies and one life office has the important differential of premium reductions for exclusions, that provider will win the business because IFAs should surely deal with offices that treat customers most fairly.
As the online comparison sites seek to make price the only differentiator, this kind of qualitative differentiation is what advisers must make key to their choice of insurer if we are to boost the market and get sales moving again.
Matt Morris is senior policy adviser at LifeSearch