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Protect and survive

During the next few months, there will be a focus on stakehol der pensions in much of the media. Such saturation coverage will raise public awareness about the importance of retirement planning.

But the arrival of stakehol der will also affect the way IFAs transact their business. Decision trees could dilute the potential for giving advice while the introduction of maximum charges could reduce an IFA&#39s future income.

Protection products can provide IFAs with an alternative income stream. It is a hug ely untapped market but one that can be very successful as the growth of critical illness sales clearly demonstrates.

But to be really successful, IFAs need to apply the same principles to protection sales as they currently do to pension sales. Advice has to drive the sale and ongoing reviews have to keep the client&#39s protection portfolio at the level they really need.

As we approach April 6, 2001, the real opportunity for IFAs may be to make protection a priority and to remind their clients that retirement planning and, indeed, savings investments and mortgages, are all funded from income. Without an income, future financial plans could be put at risk. No one can argue with that but how often does income protection appear further up the advice agenda than pensions?

Here are three suggestions for increasing sales of protection products.

Beyond mortgage critical illness cover

First, think beyond the client&#39s mortgage for critical illness cover. Although critical illness cover has been the protection success story of the last dec ade, the majority of sales are still mortgage-related.

If a client becomes critic ally ill, their mortgage will be repaid and that will relieve them of a significant financial burden. But families have many other financial outgoings that will still have to be met.

Adding some extra critical illness cover beyond that needed to clear the mortgage will not only ensure that cli ents get valuable extra protection but that the IFA&#39s bus iness also increases. The extra amount could simply be the sum of the client&#39s potential credit card debt, say £10,000, or the sum of two years&#39 worth of living expenses.

Products exist in the market that allow IFAs to combine decreasing mortgage cover with level or increasing benefits so that these extra outgoings can be properly protected.

Critical illness cover can be expensive but the cost can be kept to an affordable level by using a policy that provides family income benefit instead of one paying a lump sum. In the above example, instead of taking out a policy that provides a lump sum to cover two years&#39 worth of living expen ses, simply set up the income benefit to match the monthly outgoing.

Double up, don&#39t accelerate

Swiss Re&#39s Health Watch 2000 report revealed that 88 per cent of critical illness cover is accelerated critical illness, where the benefit is payable on death or earlier critical illness. While the majority of critical illness sales are mortgage-rela ted, this is hardly surprising. After all, a mortgage only has to be repaid once.

But if you are looking at protection needs beyond the mortgage, then the need for life cover does not stop after the payment of a critical illness claim. While meeting one financial need, accelerated critical illness removes life cover at the time it may be needed most.

It might be possible to get more life cover after having an illness but it could be very expensive if the original illness was serious and the cli ent was then an impaired life for underwriting purposes. In some cases, it may be impossible to obtain more life cover.

A possible solution is to recommend that the client chooses separate critical illness and life cover benefits within the same plan. The earlier payment of a critical illness claim does not cancel the life cover, so the policy could end up paying out twice. In fact, the plan will continue with a lower premium once the critical illness element falls away.

The double cover method it is often only a few pounds more expensive than the acc elerated method. Try it and see – you may be surprised. It offers the client very good value for money.

Rediscover income protection

Income protection is under sold yet the need it meets is obvious. Many IFAs – and providers – have not given it the attention it deserves bec ause there have been easier sales elsewhere.

But in the post-stakeholder world, income protection provides a huge opportunity for business development for those IFAs who decide to make it a priority.

One of the reasons for its underperformance has been the success of critical illness cover, which is often sold as an alternative. But, in reality, income protection complements critical illness cover and products are available in the market that allow these coverages to be combined in the same plan.

You could combine the two together to ensure that, if a critical illness payment repays the mortgage, then the rest of the family&#39s outgoings are covered by the income protection element.

Another reason for the relatively low sales of income protection cover is a perception that income protection products are complicated and prone to complex underwriting delays. Recen tly, companies have made huge steps forward in making income protection products more accessible, with clearer definitions and fast-track underwriting processes, so income protection products are definitely worth another look.

These are just a few examples of how you can create advice-driven protection solutions for your clients that offer value for money for the client and business development opportunities for you.

Modern protection products, especially menu-based products, allow you to build many other solutions and, as stakeholder approaches, these could give you an alternative way to grow your business.

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