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Risk management

The economy may be out of our control but protection products mean the consequences of ill-health need not be

The effects of the banking crisis on economies across the world have become background to everyday life but there is a danger that we have become overexposed to this type of news and immune to its importance.

We do not yet know what the consequences of these events will be but we are being exposed to risk and uncertainty through falling stockmarkets, high inflation and falling pensions.

It is understandable that we are not fully aware of the ensuing effects of these news stories, since they are complex and not directly apparent, but many people leave themselves open to financial disaster in their daily lives by taking on risks that can easily be insured against.

The last few decades have seen the wealth of the nation grow, due in part to the increase in house prices. This has created a feeling of financial security among a big part of the population. Young adults feel they can rely on their friends and family if they are faced with financial pressures.

These attitudes to risk-taking can be dangerous, particularly when one considers the many statistics showing the number of people affected by illness and injury.
I believe protection should be the cornerstone of all financial planning. Those advisers that have been in the position of going back to the family of a claimant will strongly endorse this statement through experience.

The protection industry has come a long way in recent years and it has become a very accessible product through intermediaries. Processes have been streamlined and premiums are generally affordable.

I would argue that, in addition to life cover, intermediaries should consider ill-health cover for their clients. Cost is often cited as an issue but this can be overcome through the provision of modest amounts of cover – some cover is better than none.

Cover against ill health is becoming ever more important. Advances in medical research mean we are finding we are able to diagnose and treat conditions much earlier than has been the case historically, which in turn leads to longer life expectancy.

Cover during periods of ill-health is extremely valuable – ABI statistics show nearly £800m was paid out in 2010 on critical-illness claims.

The role of intermediaries is fundamental in this process and it is unfortunate we do not have more advisers in the industry.

I would urge every adviser to discuss protection as part of the financial planning for each of their clients. At least then clients can knowingly choose to take a risk or to take action.

Deepak Jobanputra is actuarial & development director at PruProtect

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