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Open up income protection

A lack of consumer understanding of income protection can be

attributed to several causes. Introduced in the 1950s, the product

has remained largely unchanged, possibly perceived as dull by

consumers, compared with investment or even pension products which

once offered the potential for abundant returns.

Likewise for IFAs, IP never offered the same rem-unerative incentive

as inv-estment products, which have always been easier to sell to

clients than protection. Also, in a period characterised by booming

equ-ity returns, the natural tendency was to focus on making money

rather than protecting it. However, times are changing. It is my

opinion that never before has IP been as relevant as now.

As stockmarkets become increasingly volatile and the economy enters a

less robust phase, it is more important than ever to protect not only

the accumulated wealth of an individual but the lifestyle they have

worked so hard to attain. This lifestyle depends upon consistent

earnings and, underpinning that, the physical ability to earn. But

what happens if these earnings are suddenly stunted by an unexpected

event such as an accident or prolonged sickness? The client has not

been made aware of the risk of loss of earnings and the ability to

insure their income against this potential financial crisis.

The financial services industry has been very successful in

communicating the need for the individual to buy certain insurance

products such as life insurance. Like motor or travel insurance, life

insurance has become so simplified and commoditised that it is well

understood by the consumer who now buys on rate. Perhaps IP can be

blamed for being over-complicated.

IP products should be made more accessible to the consumer – a task

that should be undertaken by the provider and then communicated

effectively by the IFA.

For example, the issue of deferment periods is one area in which the

product could be simplified. Many consumers select a longer deferment

period because it makes the product cheaper. This can be a serious

mistake as it delays the engagement of valuable rehabilitation

services that a leading product provider would facilitate. In fact, I

suspect that many are not even aware that rehabilitation and access

for the claimant to valuable medical facilities can form an important

part of the product proposition.

In my opinion, in addition to making IP simpler, the product should

be aligned to the individual&#39s different life stages. Just as life

insurance is automatically coupled with a mortgage, so too, securing

your income should be a part of assuming the greater financial

responsibility of buying a property. This type of purchasing makes

more sense to a consumer who can see an incentive centred around

protecting earnings in the future.

Indeed, you can imagine how IP could make more sense to a single

high-earner, with no dependants, who may be more focused on

maintaining a certain lifestyle, than thinking about what would

happen if they died. In these changing times, perhaps financial

planners should shift their focus from protecting assets to

protecting those earnings which are required to create and sustain

those assets.

Another option is for IFAs to encourage employees to consider

extending the long-term sick pay arrangements provided by their

employer. Worksite marketing has been very successful in the US but

has yet to take off in the UK. However, this approach may have more

application once the impact of the Government&#39s Pensions Green Paper

filters down. With greater flexibility in the workplace, employees

may have the option of working beyond 65, perhaps on a part-time

basis.

In this event, employers may have to adapt benefit packages to

reflect these changing work patterns. Employees should have the

option of topping up. Work-site marketing offers IFAs an exciting new

avenue for extending group-based income protection for the individual.

At the moment, we can generalise that the consumer is either ignorant

of IP, unaware of its relevance to their life or assumes it is too

expensive. As a product that is not willingly bought but needs

explaining and req-uires presentation of a logical argument, the IFA

has a key role in communicating relevance and benefit to the client.

The problem is that, in the past, many IFAs may have dismissed the

product. Despite this, there is a strong case in today&#39s 1 per cent

world for IFAs to look at IP as a profitable revenue stream with

commission levels that are very appealing in the current environment.

There is also work for providers in educating IFAs who have

previously shel-ved IP. Product providers should present the case for

IP in a new era where earnings&#39 flow is critical to the maintenance

of the lifestyle of the individual.

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