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Promoting a protection package

April 6 may seem an illogical date on which to start a new financial year but apparently the reason is historical involving the Romans, Papal declaration and a timespan of several centuries. The date was finally settled upon in the mid-18th Century.

The start of this financial year may also be a historical landmark for ushering in the era of stakeholder pensions.

Stakeholder carries an underlying message about the importance of self-provision. This emphasis is critical as it underlines that people cannot rely on the state in the longer term for their welfare.

But with so much attention being paid to retirement provision it is easy to lose sight of other welfare needs. Financial advisers have a growing opportunity to discuss not only clients&#39 needs for income in retirement but also the need to maintain income during their working lives.

Clients still need to address their needs for protection against the unexpected and, in a climate where state benefits are under increasing pressure, their welfare shortfalls.

While mortality experience has shown improving trends, this is not the case for morbidity. When illness strikes people have traditionally looked to the state to provide support. However, state incapacity benefits for 2001/02 should concern most people, particularly if they are all they have to rely on.

The table below lists the current levels of state benefit. These amounts may increase if there are dependants. To be eligible for these benefits, applicants will have to undergo DSS assessment tests which are designed to gauge whether they are unable to follow any reasonable occupation for medical reasons.

For the many clients for whom increasing their income is a priority, having to get by on these meagre state benefits if they were unable to work would be a rude awakening. While incapacity benefits themselves are minimal, there is also little state help these days for people with mortgages who are unable to work through sickness or accident.

For mortgages taken out since October 1995, nothing is paid for the first nine months. From the 10th month on, subject to limits based on savings and a maximum mortgage level, income support will pay interest on a mortgage but will not cover any of the capital repayments.

Clearly there is a need for income protection for a range of circumstances but convincing clients of its value is often a different matter.

Painting word pictures to highlight the value of income protection can help promote the message. One of the more effective pictures being used by IFAs has been to describe the breadwinner as an income generating machine which has the capacity to stall, break down or fail completely.

Income-protection benefit is then used as a metaphor for the service contract used to put the income-generating machine back on an even keel or replace it as necessary.

Clients may plan their income requirements by changing jobs, seeking advice on their investments and ensuring they put enough money aside to secure their income in retirement.

Choosing income protection as a service contract alongside these plans can ensure these income requirements are not thrown off course and that they do not lose their home just because they lose their good health.

At the start of this new financial year advisers have the opportunity to not only initiate discussions on new ways to counter reductions in state benefits with stakeholder pensions but to present complete protection choices to clients to cope with their overall welfare shortfalls.

current STATE BENEFITS PER WEEK

£60.20 First 28 weeks if you are employed and

qualify for statutory sick pay

£50.90 First 28 weeks if you are self-employed or

if you do not qualify for statutory sick pay

in some other way

£60.20 Weeks 29-52

£67.50 After 52 weeks

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