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State expectations

We must dispel the myth that the welfare state will provide

The story that has dominated the headlines since the election has been the huge public debt in the UK and the need to slash it drastically. Inevitably, the welfare state is one of the key areas earmarked for “reform” – a friendly word for spending cuts. This presents a great opportunity to explain to consumers and IFAs why income protection is such an important product.

No matter how well an adviser explains the benefits of IP, there is one stumbling block that has so far proved to be an enormous barrier in the consumer’s mind – the welfare state. Most consumers, and even some IFAs incredibly, believe the welfare state will protect and provide for them if they are too sick to work. This is a potentially disastrous misunderstanding.

The welfare state and, in particular the benefits system, is meant only as a basic safety net to stop people dropping into the margins of society and becoming destitute. It is not there to prop up an individual’s lifestyle when they fall on hard times. Those who find they can no longer work due to illness or disability and who have only the welfare system to fall back on will find that their lifestyle costs and debts such as a mort-gage are unlikely to be met.

This shortfall in what people believe the state can provide for them and what it actually will provide, can only widen in the coming months and years as the new admin-istration desperately seeks to slash the deficit by curbing public spending.

Remember, as Protection Review’s Andy Couchman wisely pointed out recently, that while claims rates for the product most needed as a form of private provision, namely income protection, generally hovers around the very resp-ectable 90 per cent mark, the payment rate for incapacity benefit is closer to 60 per cent – even less for the new employ-ment and support allowance. State benefits are not thought of in terms of claims rates but, if they were, it would show that their payout rates are little better than PPI.

In these tough times, the protection industry can reaffirm why what we do is so important and build a vital role for ourselves and for consumers as state provision is rolled back.

The Income Protection Task Force has guided the industry to a greater focus on IP but we all have a duty to do our indiv-idual bit too and promote this product to consumers, IFAs and the media

Promoting IP is not just about explaining the qualities of the product, it is about explaining the realities of what consumers can and cannot expect for the state. When we start to get this message through to consumers, maybe the new administration will pay heed to the need for private financial protection. I hope the industry has the appetite for this challenge.

Matt Morris is senior policy adviser at Lifesearch

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