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Protection Watch: Benefits at risk and the best protection questions

Protection Review chief executive Kevin Carr looks at recent market events

Answering the best protection questions
Since moving into the world of PR more than a decade ago, I have developed a few favourite statements and questions. “The answer is yes, what is the question?” is a good one for journalists and, for clients, “thought leaders don’t say ‘no comment’” is also up there.

Back in the days when I had a proper job as an adviser, I had favourite statements and questions about protection that arguably still stand true today. “Do you want the cheapest or the best value?” was always a good one because, nine times out of 10, the response from the client was to ask what the difference was, which is music to any protection adviser’s ears.

Another question was, “what will you do with the money?”, which would generally come before any conversation about protection had taken place. “What money?” would come the reply.

I would ask clients to think about what their family would do with the payout from life insurance. When clients think about how their family might use a few hundred thousand pounds in their absence, it involves a very different thought process to talking about products, premiums, and whether or not they had any bouts of dizziness last week.

Highclere Financial Services director Alan Lakey tells me his favourite question is “what if?”. “We always think of death as the worst outcome but financially it’s not. Living with serious illness can be far worse because not only would mortgage and debts need to be repaid but there are higher ongoing living expenses too,” he says.

How mortgages, income protection and state benefits can be linked
The advice around the impact of an income protection claim on a client’s potential state benefits continues to be a grey area for both advisers and insurers. Various industry bodies are currently working together to bring further clarity on the matter and progress continues to be made. But, in the meantime, advisers should be clear with clients that risks may exist.

The Department for Work and Pensions is engaging positively with the industry and has agreed some high-level principles, where an income protection claim is used to repay (or partly repay) a mortgage, although the exact details are less clear when it comes to individual cases.

If the product is intended to be used for mortgage repayment (and stated in the terms that it can be), has “mortgage” in its title, and if the benefit is being paid directly to the lender, there should be no impact on the client’s state benefits. It may also help if the reason-why letter from the adviser (and any recorded calls) make it clear the policy was intended for mortgage repayment.

The grey areas arise if the policy does not satisfy these conditions but is being used to pay a mortgage anyway. Not that many people have income protection, not everyone claims on it, and those that do may not be too worried about losing some entitlement to means-tested state benefits (i.e. universal credit). But it is an area all advisers in the protection space should be aware of.

Also on the radar…

  • Guardian has removed the option to add fracture cover to its life and critical illness policies. Existing customers with Fracture Plus Protection are unaffected by this development.
  • Nearly half of people are self-medicating by using drugs, alcohol or sex to cope with mental health symptoms, according to new research from LifeSearch. One in five currently use over-the-counter medication, alcohol or drugs, while others use gambling, sex, food or spending to relieve anxiety, insomnia and depression. The report claims 24 million people identified self-medication as a coping mechanism.
  • Research by the Association of Financial Mutuals shows that mutual insurers paid out more than £26m in claims to 5,721 policyholders in 2018, which means 94.4 per cent of claims received by mutuals were paid during that year, compared with 88.1 per cent overall.

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