Every few years, there’s a flurry of interest in the financial media in income protection. There are strong recommendations from experts on how it can play a big part in providing financial security for families, what good value it is and how high the claims payment rates are. Then it quickly fades away again and Income Protection gets put back on the shelf.
Why is this so? One of the biggest fears that most people have is about losing their income, particularly given that the majority have few enough resources to fall back on in this event and quickly become dependent upon the welfare system. It is well known that the prospect of redundancy is extremely stressful and gives many people sleepless nights. Yet, when it comes to the possibility of losing one’s income through being unable to perform one’s work anymore, people appear blasé to the point of insouciance.
As is revealed on the Which magazine website, while just 12% of employers will support staff who are sick for over a year, only 9% of employees actually have some form of income protection policy to guard against this eventuality. This leaves a huge gap in the market for a product that provides a lot of security for a relatively low cost.
So why do so few people take it up? When you compare it to the much-maligned, and rightly so, payment protection insurance, which so many people bought to protect loans, it seems odd that so few people can be persuaded to protect their income against the risk of unexpected illness that prevents them from earning.
Surely this is down to the level of publicity within the industry. The emphasis of protection from IFAs can be minimal as they tend to focus on the sexier world of investments and projections of huge wealth in the future. Yet most people require protection from the risk of losing their income far more than they need to worry about the precise level of their savings for the future. Indeed a sustained period of unemployment due to illness, with only state benefits to rely on, will do the kind of damage to their long-term savings that no ‘growth‘ fund will be able to repair.
What’s needed is a major publicity campaign from the industry on the value to be had in income protection. It needs to be a sustained campaign, which brings home to consumers the value that is provided by this protection product and the risks involved in not having it. At a minimum, we should be aiming to raise the number of people who have income protection to the 41% level of those who have life assurance.
Income Protection, along with basic life protection and a minimum pension saving should form the core of financial products possessed by any working age adult in the country. Having such low levels of income protection is a danger for the economy and a missed opportunity for the life industry itself.
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