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Ian Smart: Getting the income protection habit

Advisers need to get into the habit of routinely talking about income protection and not treating it as a second class product to be dealt with as an optional extra following a mortgage.

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In the UK, people have never formed a habit of taking out protection insurance, despite its importance as the cornerstone of financial planning.

It is certainly not something that most people do as a matter of course. To change the buying habits of a nation, the industry needs to make buying protection a habit, something that virtually everyone does. But the buying public won’t do this unless those they seek advice from also make a habit of talking about it to them.

Often protection is only considered when taking advice on another financial decision such as taking out a mortgage. And then it is often a secondary consideration that many people decide can be done later, when they have more time to think about it.

But once the mortgage is arranged and the new home moved into, other things become more important and the need for protection is constantly put on the back burner to be done another day

And it is not just clients who are deciding to delay the purchase.

I have spoken to some advisers who say that following the upturn in the housing market they are too busy arranging mortgages to spend time arranging protection for their clients. The problem is if advisers fall out of the habit of talking about protection, it will never get done. 

Buying a home is expensive business and most people will have stretched their finances almost to breaking point, leaving them with very little, if anything, in the way of savings.

If someone found themselves out of work because of an illness or accident there would be no financial safety net to fall back on.  A few months off work, perhaps on a reduced income, can quickly see people start to struggle.

Income protection addresses a common risk, as people are more likely to have time off work than they are to suffer a critical illness or die during their working lives, yet is one of the least sold products. As the most likely risk to materialise it really should be the first that is protected against.

Yet the habit that many advisers have when they do mention protection in connection with a mortgage, is to talk about the need to make sure the mortgage is paid off if the client dies or suffers a critical illness. As a result most people buy life and critical illness cover when taking out a mortgage. Comparatively few people receive a recommendation for income protection.

Last year was a year of innovation for income protection. New products were launched and existing products were changed and this is likely to continue in 2014.

The main providers also published claims statistics for the first time, although the ABI is still working on a consistent standard on how these statistics should be calculated. This can only be a good thing and should help advisers change the perception that most protection plans never pay out.

But we need to do more. Ultimately, the buying public will only become interested in income protection if advisers make a habit of talking about it with clients. 

Ian Smart is head of product development & technical support at Bright Grey

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