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Protection from the elements

Over the next few months, there will be a focus on stakeholder pensions in much of the media.

Such saturation coverage will have the effect of raising public awareness about the importance of retirement planning.

But the arrival of stakeholder pensions will affect the way IFAs transact their business. Stakeholder decision trees could dilute advice while the introduction of maximum charges could reduce an IFA&#39s future income.

Protection can provide IFAs with an alternative income stream. It is a hugely 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 advice principles to the protection sale as they currently do to the pension sale. Advice has to drive the sale and ongoing reviews have to keep the client&#39s protection portfolio at the level that they really need.

As the launch date of stakeholder approaches, the real opportunity for IFAs may be to make protection a priority and to remind their customers 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 protection sales.

Beyond mortgage critical-illness cover

First, think beyond mortgage for critical-illness cover. Alth ough critical-illness cover has been the protection success story of the last decade, the majority of sales are still mortgage-related.

If clients become critically ill, their mortgages 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 criticalillness cover beyond that nee ded to clear the mortgage will not only ensure that clients get valuable extra protection but that the IFA&#39s business 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 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 family income benefit critical-illness coverage instead of one paying a lump sum. In the above example, instead of taking out a lump sum to cover two years worth of living expenses, 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”, that is to say when the benefit is payable on death or earlier critical illness. While the majority of critical-illness sales are mortgage-related, 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 some more life cover after having an illness but it could be very expensive if the original illness was serious and he was then an impaired life for underwriting purposes. In some cases, it may be impossible to obtain more life cover.

The 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 CIC element falls away.

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

Rediscover income protection

Income protection is an undersold protection coverage yet the need it meets is so obvious. Many IFAs and providers have not given it the attention it deserves because there have been easier sales elsewhere.

But in the post stakeholder world, income protection provides a huge opportunity for business development for those that 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 repaid the mortgage, the rest of the families outgoings were covered by the income protection element.

Another reason is that there is a perception that income protection products are complicated and prone to complex underwriting delays. Recently, companies have made huge steps forward in making inc ome 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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