However, this is where you come in. Advisers offering protection policies all have a role to play when ensuring clients are kept financially secure should the worst happen to them. And while selling income protection might seem tricky for some, there is a plethora of reasons why offering IP as the first option is the right thing to do.
Did you know people are far more likely to insure their pet than themselves? A bonkers idea, when you consider that everything we buy (that includes our pets), the bills we pay and the lifestyles we enjoy all hinge on our ability to function on a daily basis. Without our income and the ability to work, it is fair to say these financial demands will only continue, so it beggars belief that more people do not protect their salaries.
HOW TO talk about
Income protection
Welcome
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With the coronavirus crisis placing financial resilience into the spotlight, we have teamed up with Legal & General to produce an interactive digital guide to income protection for advisers. Inside you will find sales tips and tricks, expert opinion and plenty of visual takeaways you can incorporate into your conversations with clients. We hope you find it useful.
Adam Saville Editor, COVER
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Read next
Introduction
The truth about income protection
Could you survive on state benefits?
Picking the lock: Key advisers share their IP secrets
Five things we learnt at the L&G sales masterclass
Helping clients get back to work
New lease of life? How IP is poised to protect the rental market
“I hope Covid-19 makes it easier for advisers to get the message across”
It is a sad fact of life that our outgoings would not stop if our income ever did. However, an income protection plan can help your client cope financially if they can’t work due to sickness or injury.
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Legal & General believes that income protection is one of the most valuable forms of protection insurance, because it protects your client’s main asset: their ability to earn an income - whether they are employed or self-employed. It is this that allows them to help maintain their lifestyle and pay the bills, cover the rent or mortgage, at the time financial security is needed most.
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What is income protection (IP)?
It is a plan designed to pay out a monthly benefit if in the event of being unable to work due to incapacity caused by illness or injury, resulting in a loss of earnings. The monthly benefit is paid for the duration of a valid claim until a client recovers and is no longer incapacitated, the policy ends, or they die - whichever happens first. It also comes with invaluable ongoing support from the provider to help your client get back to work.
The amount of benefit someone will receive depends on their income when they claim, how long a client wants the benefit to last and what benefits their employer may provide. A deferred period is chosen by a client at the start of the plan, which can vary depending on the policy. The provider will pay their benefit one month after this period ends, then monthly in arrears.
1: Income protection is a plan that can protect clients' main asset: their income that allows them to maintain their everyday lifestyle and pay bills
2: Income protection ensures clients a monthly benefit - plus ongoing support from the provider - until they recover
3: The benefit amount is dependent on income, employer benefits and how long the employee wants it to last
Click each icon to view fact
What solutions can I tailor to clients?
A wide range of features and options can often make recommending IP a complicated business, but it needn’t be. All these options can make IP one of the most flexible protection products to fit your client’s budget. For life insurance or critical illness cover, the only levers to reduce cost are to change the length of the policy or the amount of cover - this is not the case with IP.
At the start of the plan, you can recommend the length of the deferred period, the time before the benefit is paid, choose the length of the claim period either a year or two or for the term of the policy. Then there’s the increasing IP or Stepped Benefits. All these will have an effect on the premium to a greater or lesser degree allowing you to leave the benefit level and term alone.
Income Protection: What you need to know
Less than one in 10 adults
in the UK have something in place to ensure their income is secure
previous
Source: Mintel Report 2020
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If your client is unable to work due to sickness or injury, the state will only cover the most basic living costs, and benefits are only payable after rigorous assessment.
According to the Office of National Statistics (1), the average household spends £572.60 per week. So how would many households cope if the main earner was unable to work due to a prolonged illness and forced to rely on the state?
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Those people placed in the ESA work related group will need to apply for Universal Credit if they’re unable to return to work when their benefit comes to an end. However, the benefit is means tested and those with more than £16,000 in savings won’t receive anything. State benefits can be hugely complicated and difficult to understand and what we can include in this guide will only paint a limited picture of what a client may be eligible for.
Some employers only offer the bare minimum statutory sick pay (SSP), while others will offer extended pay for absent staff. Changes to legislations brought in 6 April 2020 under the Good Work Plan mean that employers now have to tell staff what their sick pay entitlement is, which owing to how little it is likely to be may trigger some productive conversations about income protection with clients in employment.
According to NICE (2), only one in five of those absent from work for more than six months return to work, so it’s crucial that your clients understand what their options might be if this was to happen to them.
To find out what a specific client might be entitled to you can use EntitledTo and ABI’s Percy Calculator. More information about ESA can be found at Turn2Us.
At the end of the day, the state will only cover the most basic living costs and benefits are only payable after rigorous assessment. Those looking to protect their lifestyles need to go further and take a closer look at protecting the one thing which makes that possible: their income.
Sources (1) Family Spending in the UK: April 2017 to March 2018 (2) NICE 2009
If they’re not lucky enough to be employed by a business that offers enhanced sick pay, they may only receive (an improved) statutory sick pay of £95.85 for the first 28 weeks of illness.
If they’re unable to return to work, they may be able to apply for Employment and Support Allowance (ESA) provided they have paid sufficient National Insurance contributions. ESA will pay up to £74.35 per week for the first 13 weeks, whilst being assessed for the benefit.
Successful ESA claimants who can realistically expect to return to work at some point are allocated to the ESA work related group and they’ll receive the basic allowance. The more seriously incapacitated are allocated to the ESA support group and will receive an additional £39.20 for up to 52 weeks, which will be £113.55 per week, which won’t be subject to the same time restriction.
graphic
Average household spend £572.60/wk
Employees may only receive statutory sick pay of £95.85 for first 28 weeks of illness
Employment and Support Allowance pays up to £74.35 per week for first 13 weeks whilst being assessed for longer-term benefits
More seriously incapacitated can receive additional £39.20 for up to 52 weeks from ESA
Key advisers share their income protection (IP) sales secrets
Picking the lock
Roy McLoughlin Associate director, Cavendish Ware Co-chair, Income Protection Task Force (IPTF)
“When selling IP arguably the most important factor is: How likely is it to happen? So if we consider that the two biggest causes of absenteeism in the workplace are back and stress related one has to ask which protection policy covers those. Only IP! The industry sells reasonably large amounts of life-only and about half the same again with critical illness insurance yet we are not selling anywhere near enough numbers the event most likely to occur! “Tip number two: assumption is the mother of all mistakes. So don’t let clients assume that if they are off ill they will be looked after by either the state or their employer. In the vast majority of cases this is either negligible or not applicable and yet so many people rely on this flawed assumption. That in a nutshell was what the Income protection taskforce’s Seven Families campaign was all about and is still about. (If you have forgotten about it click here to watch the videos) “At the very least advisers should help them answer these two misnomers and then guess what - all roads lead to IP!”
Click on each adviser to read their secret
Roy McLoughlin, Associate director, Cavendish Ware Co-chair, Income Protection Task Force (IPTF)
Alan Knowles Managing director, Cura Financial Services Chair, Protection Distributor’s Group (PDG)
Naomi Greatorex Director, Heath Protection Solutions
Ian Sawyer Commercial director, Assured Futures
Robert Harvey Head of protection advice, Drewberry
“I always recommend discussing the customer’s health as part of your fact-find. Your choice of provider can be hugely impacted by a customer’s medical disclosure, in some ways even more so than it would for life cover. For example, find out your customer is diabetic and you may reduce your choice of insurers to a handful. Next thing, if it comes to it, would the customer prefer a loading to cover the condition, or an exclusion to keep it cheaper? Having this prior knowledge can save a lot of time from failed applications and save letting the customer down by recommending a plan they can’t have. “If a customer ever asks you about critical illness, ask them what they think it covers. I find many customers respond with ‘it covers me if I can’t work’... there’s your opening to discuss IP. “If a policy is too expensive try dropping the retirement age or considering a shorter claim period, the cost difference can be huge.”
Alan Knowles, Managing director, Cura Financial Services Chair, Protection Distributor’s Group (PDG)
“It’s important to provide some options when looking at protecting your client’s income to everyone’s budget. "Budget cover: To have two years of protected income is better than no protection. Short-term income protection is approximately half the cost of the long-term option. Hybrid: I have started to talk more about looking at some cover on a short term and some on a long term, to give at least some longer-term cover. I recently met a client who wanted £50,000 income protection cover. Looking at £25,000 on budget and £25,000 on long term helped him get some long-term cover in place as well. Age-costed income cover can offer a cheaper initial alternative to guaranteed premiums. Particularly useful when insuring higher risk occupations that otherwise would find guaranteed premiums prohibitively expensive. "A guaranteed minimum claim amount is vital for fluctuating incomes, and a product which offers breathing space can give clients an option to insure without having to verify income.”
Naomi Greatorex, Director Heath Protection Solutions
“As an adviser, it is essential to understand what has initiated a client’s interest in protection. Questions around savings, outgoings and current lifestyle are all crucial to recommending the best product. Every client should be aware that some cover is better than none, which often means comparing various policies to ensure a good balance between peace of mind and affordability. “Our top three questions to establish the necessity for cover would be: 1. What’s your motive for looking at income protection? 2. How long could you comfortably survive on savings if your income stopped? 3. What current provisions are in place if you were off work due to accident or sickness?”
Ian Sawyer, Commercial director Assured Futures
“According to our annual Protection Insurance Survey, two of the most common reasons respondents gave for not having income protection were cost and a concern insurers don’t pay out. To that end, advisers should be prepared to challenge their clients on whether they can afford to not protect their income, by discussing the serious limitations of state benefits, but also highlighting any of a number of budget solutions that are now available. “With many insurers now also offering a whole range of benefits and features alongside the core protection, these present a great opportunity for advisers to demonstrate the value of protection insurance as an overall health and wellness proposition. Value-added benefits provide access to a more immediate range of services which are likely to be utilised more regularly by the client. When advisers correctly signpost these benefits to their clients and encourage their use, policyholders feel they are getting something for that monthly premium, beyond simply the promise of a pay-out when something major happens.”
Robert Harvey, Head of protection advice, Drewberry
COVER recently attended a Legal & General (L&G) protection sales workshop. The uniquely CII accredited masterclass provided a shed-load of sales tips and tricks for advisers, while offering some food for thought to advisers looking to help grow the market
Ever considered why you fundamentally do the job you do? Is it because you like helping clients, the challenge, you like your colleagues or your job gives you a good work/life balance? Actually, if we are honest, most of us do it to earn a living and our clients are no different, so why do so few insure it? Here are some of the things we took away from the L&G sales masterclass.
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So much, he said: “If I had my way, I would write the word 'insure' upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever.” So there you have it. We couldn’t have said it better ourselves…
5. Winston Churchill was, like us, also a big fan of protection
So why don’t they insure themselves? People are much more likely to insure their mobile phones or pets than their incomes, even though without their income they would not be able to afford either. It’s not a new idea, but always one worth remembering: if your client owned a cash machine that paid out their salary each month, they would probably insure it – so remind them that they are the cash machine. And their salary would eventually stop if they stopped.
4. If your client owned their own cash machine, they would insure it?
When someone purchases a property, an applicant is warned that failure to keep up payments could result in it being repossessed. Advisers should therefore remember that there are six ways someone (with a mortgage) can lose their home. These include death, unemployment, sickness, critical illness, property damage and personal accident. And guess what? All of these can be insured and create the fully comprehensively protected mortgage. A landlord is responsible for finding cover for something like fire damage, but that still means for renters there are five (insurable) ways they can lose their home.
3. There are six ways to lose your home
People are more likely to buy the things they want but not always what they need, like the latest mobile phone. However, while income protection is something that anyone earning a salary might at some point desperately need, it is very likely that they will not want to buy it without advice. Why? Have you ever heard the old “it won’t happen to me” defence, so simply telling a client that this bad thing could happen and they need cover won’t always work. It is for that reason that a successful protection sale requires good questioning skills so clients can visualise the risks, what L&G’s Richard Kateley calls “experiential decision-making” in the minds of clients. They need to see it – or feel it – to believe it.
2. Most people don’t want protection but one day they might need it
The numbers do not lie. During our working lives, one-in-three of us will face long-term sickness, one-in-four of us will survive a critical illness and one sixth of us will die before retirement. However, advisers sell more life cover, followed by critical illness cover and, least of all, income protection. So why not turn the triangle upside down, and offer income protection first? After all, it’s the policy that clients are most likely to need.
1. Advisers should turn their protection sales triangle upside down
L&G sales masterclass takeaways
These are the six most common objections from customers when purchasing income protection:
Fix up, look sharp!
Advisers need to be knowledgeable about income protection as there are a lot of great benefits and options with L&Gs Income Protection Benefit plan such as:
Choice of one or two year low cost option which is ideal as a starting point as some cover is better than nothing. This can also be reviewed regularly depending on the clients needs and budget, if they want to apply for a full term benefit plan. Stepped benefit is available with our level and increasing plans and links in seamlessly to the clients works sick pay scheme. A wide range of deferred periods. An income guarantee automatically included of £1,500, we will base the income guarantee on the lower of £1,500 per month or your clients chosen monthly benefit at the start of their policy even if their earnings at the time of claim do not support this level of monthly benefit.
Medical professionals
If your clients are NHS dentist, doctors, midwives, nurses or surgeons we will base the income guarantee on the lower of £3,000 per month or your chosen monthly benefit at the start of your policy.
Rehabilitation Support Service
A range of rehabilitation support services are included at no extra cost, such as triage, full rehab assessments, ongoing reviews and file reviews. Whether the problem is physical or mental health related, this service gives access to early intervention treatments and a team of healthcare professionals. Trained nurses, physiotherapists and occupational therapists are on hand to offer specialist advice and support to facilitate a successful return to work.
Flexibility
Income protection is one of the most flexible protection products in terms of making it fit a client’s budget in the advisers’ tool kit. With life insurance and critical illness cover all you can do to reduce the premium is to reduce the amount of cover’ and length of policy.
With income protection you can leave both these at a level the client’s needs and use the host of other levers such as changing the deferred periods, reduce the benefit period to one or two years or decide whether to select a policy which includes indexation (Increasing Income Protection Benefit) or not. If cost is the last objection it might be that we have not established worth in the clients head.
You’re not alone
There is a lot for advisors to take in because each client we see is different and each income protection plan needs to be tailored to their specific needs/circumstances and budget. There is lots of help at hand such as sales aids, webinars, face-to-face support, workshops and so on, so the adviser can always sharpen up their knowledge by whatever medium they wish to access.
Hover to reveal each objection
Objections to income protection
I don’t need to protect my income
An ideal response to anyone of these objections? “Tell me what makes you say that” This encourages the client to expand and state the real reason they gave the objection, which as we know could well be a smoke screen. In truth if you receive one of these objections the real value of income protection has not been established at the start of your meeting when you are explaining your services/process. Explain to your client that you will be focusing on their income as without it there will be consequences, and ask them to list what they could be, such as not being able to pay the mortgage/rent, lifestyle and the rest.
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Not going to happen to me
Can I take it away to consider
Never off work
My savings will support me
Employer will look after me
L&G’s Steve Fallon hurls some pearls of wisdom to advisers brushing up on their income protection knowledge.
Some customers might assume that income protection (IP) is nothing more than financial indemnity paid to someone who is unable to work – wrong.
Often overlooked is the early and ongoing intervention and rehabilitation support available through IP. Across a number of occupations, this can include assistance with physiotherapy, return to work support and mental health services such as counselling and cognitive behavioural therapy (CBT), to name only a few.
To illustrate the immeasurable impact these services can have on individuals while they recover during a long-term absence, we only need to look at the impressive stats within the Group Income Protection space:
About two thirds of claimants who returned to work using Legal & General's rehabilitation services in 2019 did so before having to claim on their group income protection policy.
And what’s really heartening to see is our learnings, from the group space being applied in the personal market. Legal & General’s recent announcement that they adopt the same rehabilitation approach as Group IP for individual income protection policies – and want to be notified at the earliest convenience if an individual income protection policyholder is off due to sickness or cannot work due to injury, was hailed as a game changer by Roy McLoughlin, co-chair of the Income Protection Task Force (IPTF).
"The IPTF warmly applaud this announcement and would urge others to follow suit. We have seen from our group colleagues what a phenomenal difference notifying insurers once the illness strikes make and there are numerous anecdotes as to the positivity and good feeling that this creates. HR professionals will regularly tell you that early intervention makes the insurance feel more real and purposeful and thus it becomes an integral and respected benefit. To be able to start the process before the deferral period in individual is in our view a game-changer."
Here are just a few real-life case studies from Legal & General involving group income protection claimants. Some details have been changed to protect the customer’s privacy.
Case study 1
/
Case study 3
Case study 2
Click to read each case study below
Bad back leading to self-harm
Gender: Male Definition of claim: Own occupation Reason for absence: Lower back pain and sciatica with associated anxiety and depression Occupation: Hydraulic engineer
Now it’s Personal
Gender: Male Client: 52 years old Date First Absent: 18 January 2018 End of Deferred Period: 6 months Definition of claim: Own Occupation Reason for absence: Work-related Stress
Cancer claim leading to depression
Gender: Female Client: 34 years old Deferred Period: 3 Months Reason for absence: Rectal cancer, leading to depression and constant pain Occupation: Nursery nurse
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What happened?
A man sustained a back injury when lifting a heavy object at work. This resulted in a sharp and agonising pain in the back which travelled down his leg. He was bed ridden for three to four days with pain until he could move and go to the GP.
An MRI showed there was no need for surgery but pain management and therapy was recommended. He was referred for physiotherapy by his GP and he completed six sessions but further therapy on the NHS was declined.
He was no longer employed due to the back pain and although he tried to find alternative work where he would be able to sit, stand, and move around to help relieve the back pain, he had not been successful mainly due to the ongoing back pain.
He described symptoms of:
Lower back pain which can move up to the centre of the upper back. Limps due to pain in the left leg. Tingling and pins and needles in his left foot and left hand. The pain affected and limited walking, standing, sitting, kneeling, bending, lifting and carrying, using stairs, driving and shopping.
All of this made him feeling negative and low due to the accident, and ongoing pain leading to him losing his motivation to even simple things.
He had been self-harming by cutting himself and the clinical scores were in the severe range for anxiety and depression. Concentration and memory were reduced and he was forgetting conversations and TV programmes. His confidence and self-esteem were never very high and he was socially isolating himself and wanted to be on his own.
If his partner was not at home, he would stay in bed for longer, not wash, or dress and he stayed in his nightwear. Appetite was reduced and he lost weight. He used to enjoy hiking and walking but was unable to do this due to pain and lack of motivation.
"He used to enjoy hiking and walking but was unable to do this due to pain and lack of motivation"
How Rehab helped
The claim was referred to the rehab team in March and the initial telephone triage assessment was carried out in early April. He was provided with advice during the initial assessment about:
Developing a routine for getting out of bed at a regular time, and getting washed and dressed every day. Write a list of things he needed to carry out during the day so that he developed purpose to the day. Make an appointment with his GP to discuss medication and the pins and needles in his hand. Take pain medication as prescribed and not to wait for the pain to get to a point it was unbearable.
Following the assessment a referral to our third party providers for physiotherapy, Ascenti and CBT Clinics. The aim of the therapies was to help with pain management, physical functioning, anxiety, and depression and to enable him to become physically and psychologically ready to look for and return work.
He completed 11 sessions of CBT and six sessions of physiotherapy.
Outcome
He returned to work through an agency within four weeks of the referrals being made. He was working full time with the agency putting leaflets in envelopes. He had started discussions with his company for the position to become permanent.
He stated that while he continued to suffer from back pain the physiotherapy and CBT helped him with the pain management and enabled him to work. He then started discussions with the company for a permanent role.
The case was closed with the rehabilitation team when the he returned to full time employment in May 2019. Again showing that although the back pain was the main cause of not being able to work other symptoms soon took over and without treating these then he would not have returned to work in the short term. Although he still suffered from the back pain he could manage this and also hold down a full time position.
We are now seeing Rehabilitation services really making their mark with individual income protection policies. Mental health issues can come out of nowhere. One minute you can be feeling ok, the next your whole world is tumbling down. That’s exactly what happened to Idris.
He was suffering with stress due to a dispute with his manager. He’d been having counselling sessions through his Employee Assistance Programme, but they were coming to end, and his symptoms hadn’t improved.
Idris had income protection from Legal & General, so we referred him to our rehabilitation team to help him get back to work in a positive state of mind. He wanted to work towards a better relationship with his manager.
As part of his treatment, he had eight face-to-face Cognitive Behavioural Therapy sessions with our provider, CBT Clinics. They worked with him to create a relapse prevention plan, reducing the likelihood of future absences.
Thanks to our specialist teams, Idris felt well enough to return to work two months before the end of the deferred period.
And then we have Amy, where her original condition, that she had and lead to her being off work, was treated but this lead to ongoing pain and depression which resulted in her not being able to return to work.
Following treatment for cancer which included undergoing significant surgery for her condition, Amy still couldn’t return to work due to the physical symptoms she was experiencing. What’s more, she wasn’t allowed to take any strong medication to ease her pain.
She had been absent from work for three years prior to being referred to our Rehabilitation team to see if they could help her to overcome the pain issues and hopefully return to work. They recommended Amy to see her GP to discuss pain relief and antidepressant medication and a referral was made to our third party providers for psychological therapy.
Throughout the whole process, a Rehabilitation Specialist kept in touch with Amy to monitor her progress and give advice. After three months, Amy found, through engaging with the psychological therapy successful ways to manage her pain levels so she could get on with life and follow her dream of becoming a nursery nurse.
Rehab can make a huge difference to any client whether it is at the very start of their condition, during or when they are on the road to recovery. Income protection is so much more than a simple income replacement, it’s there to help the client’s financial, mental and physical wellbeing from day one. So the next time you are talking to your customers about protecting their income with an income protection plan, make sure they are aware of what they are really buying into.
After three months, Amy found she could get on with life and follow her dream of becoming a nursery nurse
Tailored, individual care.
Vanessa Sallows, Claims & Governance Director, Legal & General comments;
“Delivering the right support at the right time is what makes the difference. We know everyone is different, and the needs of an individual can be much more complex than the symptoms presented. That’s why we built our market leading rehabilitation philosophy around comprehensive early intervention, putting the person at the heart of our approach. Our claims team and vocational rehabilitation specialists work hard to deliver tailored, individual care that provides individuals with the opportunity for a quicker return to work and health. This tailored care approach helps to reduce the physical and mental impact for both the individual and their family whilst paying the monthly benefit when appropriate. And this is really what makes the rehabilitation services offered within many income protection plans so vital – and a key point of difference when comparing to life assurance and critical illness.”
L&G Claims 2019: Income Protection
The numbers
New and continuous claims
483
New and continued claims paid
93%
Total amount paid
£1,131,976
Average monthly benefit paid
£607
Volume of claims
517
Average claims ease score rating from our customers
96%
Min customer age
22
Max customer age
65
Average customer age
41
Claims
Policies
Customers
Customers found us trustworthy and reliable
86%
Top three reasons:
33%
Musculoskeletal
Cancer
17%
Mental Health
12%
Max age of policy
42 years
Min age of policy
28 days
Average length of policy
5 years
Male percentage claimed
57%
Female percentage claimed
43%
Roy McLoughlin
Real Life examples
: 'Game-changer'
Enhanced flexibility and greater simplicity, Legal & General’s recently launched Rental Protection Plan, designed to meet the needs of a drastically underserved and financially exposed society of renters. Adam Saville explores further…
New lease of life?
Last year, a survey from Sainsbury’s Bank revealed that only a quarter of renters (26%) are likely to have life insurance or critical illness cover (CI), compared to almost half of homeowners.
Bearing in mind that income protection (IP) sales still make up less than 50% of CI sales, we expect the figure for renters covered by IP to be significantly less than a quarter.
In fact, recent research by Hymans Robertson suggested that only 18% of UK renters believed they had some form of protection insurance in place, 7% relating to individual protection, and 11% through their employer – even that figure, to us, feels a tad optimistic.
The lack of financial protection on risk for renters flies in the face of two significant factors. Firstly, income protection, industry experts will tell you, is the best-placed product to meet the protection needs of renters. Secondly, renters are just as vulnerable to an income shock as homeowners – or arguably more so.
“Ask yourself a simple question,” Cavendish Ware’s Roy McLoughlin tells COVER. “In the event of illness who will be more sympathetic… the lender or the private landlord? Work that out and you will realise that the ever increasing rental sector needs our help more than ever.”
It’s not just the need for rental protection that makes this underserved section of society so compelling. The sheer size of it also makes it a market crying out to be tapped. The aforementioned Hyman Robertson report estimated the rental protection gap to be worth around £30bn.
The types of people renting are changing too. According to the 2018 English Private Landlord Survey, the number of households renting privately with children has risen almost 500,000 to nearly 1.6 million over the past 10 years.
The English Housing Survey found that one in five UK households are currently renting, but interestingly in the 25-34 age group there is parity between owner occupiers and renters, with both reporting 41% of the population.
Cura managing director Alan Knowles points out that while renters, like homeowners, face eviction if they cannot pay for their property, they are far less likely to have had a conversation about financial protection. “The difference is that homeowners have a touchpoint where a mortgage broker or lender will hopefully discuss protection insurance with them,” he adds. “Renters on the other hand don’t have this same touchpoint.”
It is for this reason that the protection industry has not focused on renters in the same way that it has focused on those taking out a mortgage, Mark Dennison, director at LightBlue UK, explains. “With the disproportionate level of deposit and income needed to get onto the property ladder these days, people are renting for longer than was true for previous generations.”
This, he says, has left a large gap in the type of financial advice that people – particularly younger people – will have been exposed to.
“There is a huge opportunity to target more products specifically at renters, or those with fluctuating incomes, and raise awareness of why IP is essential to keeping people’s finances afloat,” he adds. “The key lies in putting processes in place to capture people when they are setting up rental agreements, which requires lettings and estate agents, financial advisers and insurers to collaborate.”
However, Dennison’s view is that in order to make a significant difference to the number of renters taking out IP, there would need to be a fundamental change to the process of setting up a rental agreement to include financial advice. “Partnerships or referrals would most likely need to be put in place to ensure the sales process for income protection is appropriate,” he explains.
Paul Foody, managing director of Neilson Place, believes there is a need for an intermediary, an authorised firm that sits between the letting agents and the product providers. “A firm which understands the protection products, understands tenants' needs and can advise on the best solution, with a view across the whole market,” he said in recent article in COVER.
Dennison adds: “The key challenge would be convincing people already facing rising rental costs across the UK, that they have enough cash spare to consider additional insurance.”
Then there is the added barrier of equipping letting agents with the right knowledge and skills to be able to talk about protection proficiently – without straying into the realm of unregulated advice – and signpost customers appropriately where needed.
Education on the benefits of IP, the consequences of not having cover in place and its unexpected affordability will also be crucial to reducing the rental protection gap.
Andre Botes of Austin Friars agrees that landlords and estate agents are key to unlocking the rental market. “If the agents can ask the potential tenants to complete an expenditure report, gather basic income documents and ask the clients to set their monthly budget in the correct way, the opportunities are endless,” he says.
Meanwhile, the introduction of the Tenant Fees Act in June 2019, banning most letting fees and capped tenancy deposits in the rental sector, could make protection agreements potentially beneficial to landlords. “It will mean that the landlord has an added layer of protection against rental voids, the agents know that they have gone the extra mile and no doubt added value to their transaction,” added Botes. “The clients will be very happy with the service, and the adviser will have a new client, hopefully for life.”
Botes makes the point that greater expenditure checks from estate agents to help safeguard renters would also help pave the way for protection conversations.
Product innovation
Protection solutions targeted specifically at the rental market have recently emerged to make it easier for advisers to discuss protection with renters. In September of last year, Legal & General rolled out its Rental Protection Plan (RRP) after piloting it through the Mortgage Advice Bureau in the summer.
Consisting of a suite of products including a choice of Rental Income Protection Benefit, Rental Life Insurance and Rental Life Insurance with Critical Illness Cover. Each is designed to pay out a monthly benefit in the event of a valid claim which can be used to help cover rent, bills or other financial commitments.
As well as the clever marketing, advisers have welcomed the increased flexibility and added simplicity afforded by the plans, in particular the addition of an ‘income guarantee’ benefit, which available on Rental Income Protection Benefit.
“The simplicity of the product’s design makes it easier to sell,” said Richard Kateley, head of intermediary development at Legal & General. “Built around life, critical illness and income protection products – the familiarity of the product set should enable better promotion and understanding of the products and their benefits. In addition, the adaptation of guaranteed insurability option (GIO) will help provide confidence in the product; and how the renter has been integral in shaping the design.”
According to Kateley, a key goal for the sales process is to help facilitate conversations that are “natural and relevant” to the needs to renters. It’s for this reason that marketing assets for advisers and clients are being developed and designed with renters specifically in mind.
“We know renters are not as familiar with protection as mortgage holders and so our next goal/challenge is to help motivate and educate both advisers and consumers,” said Kateley. “How do we better convey both the opportunity and need in the rental market? There is a huge potential win-win for renters, letting agents, and advisers - and so finding new ways to re-tell a familiar story will be key to succeeding in the rental market.”
Offering a message to fellow advisers, Cavendish Ware’s McLoughlin concludes: “So why not go and talk to some estate agents whose rental book is large? Renters are in larger numbers than ever before which means the marketplace is vast. These are your clients of tomorrow in so many ways but we need to start talking to them today. It’s an easy product with an easy solution so don’t complicate it. Thankfully the likes of L&G are providing a tailored and flexible solution too.”
Mark Dennison, director at LightBlue UK
500,000 to nearly 1.6 million
The number of households renting privately with children has risen over the past 10 years.
"With the disproportionate level of deposit and income needed to get onto the property ladder, people are renting for longer"
Tailored and flexible solution
How IP is poised to protect the rental market
"If the agents can ask the potential tenants to complete an expenditure report, gather basic income documents and ask the clients to set their monthly budget in the correct way, the opportunities are endless"
Andre Botes of Austin Friars
One of the biggest things we have learnt from the coronavirus crisis is the need for financial resilience, writes Legal & General’s Richard Kateley
Needs pics, pullouts + quotes to break up text
I have spent most of my working life talking to advisers about the need to talk to their clients about protecting the one thing that they all rely on: their income. It is my belief that all our protection conversations should start with considering protecting our client’s income.
I think the biggest thing we have learnt from the coronavirus crisis is that – whether we are employed, self-employed, have a mortgage or rent to pay, a salary big or small – having a financial back-up plan is vital to help us through difficult times.
Within a week of the UK shutdown people were desperate for financial support. We saw record numbers apply for Universal Credit (1); we saw the government step in with support to cover 80% of salaries for people who were furloughed. The reason for this was simply that people were desperate to cover their outgoings and food for their family. But the speed of this need was most shocking – after just one week.
Deadline to breadline
When we launched our Deadline to Breadline research way back in 2013, we wanted to truly understand the financial stability of people across the UK; to gauge how prepared they are for unforeseen events and to measure just how far away they are from the breadline without some financial planning - in other words their ‘deadline to the breadline’.
In our last edition of this research in 2017, the average deadline was 32 days before their savings would run out (2). The reality from recent events would suggest this is a huge over-estimation.
It is true, that in most cases, an income protection (IP) policy would not have helped with the situation we found ourselves in, as the vast majority of people lost their income due to employment ceasing and not due to ill health. Equally they have had the support from the government replacing some of their earnings.
But when life returns to normality and if you lose your ability to earn an income due to accident or ill health, it is likely you won’t have the same support. You might be one of the lucky ones who has an occupational income protection scheme, but if not you will be looking at living on statutory sick pay (SSP) which is a mere £95.85 a week (3). After that you will have to rely on your savings and then support from the Bank of Friends and Family.
I just hope that this is a real wake-up call for the whole country about the importance of a good financial back-up plan and the value of financial advice.
Financial awareness
There a couple of good things to have come out of the pandemic from a financial awareness perspective. One is the realisation from adults across the UK regarding the SSP rate of £95.85, and that they could not manage on it at all. Before this, most of the public seemed to have little idea of the support they might be entitled to.
There was also the new Good Work Plan legislation that came in on the 6 April 2020 stating that employers now have to tell staff, from day one or before, what their sick pay entitlement is, and for many this will simply be statutory at £95.85 for 28 weeks.
According to the government, the new mandatory rules ‘extend the right to a day one written statement of rights to workers, going further to include detail on rights such as eligibility for sick leave/pay and details of other types of paid leave, such as maternity and paternity’.
I think this is an excellent move and should allow employees make informed decisions based on fact and not perceptions.
Biggest asset
Ask anyone what their biggest asset is and most will say their house, car or maybe even their pension fund, but in reality our ability to earn an income is in fact our biggest asset.
A person on the average UK salary, which is currently £585 per week, works out at around £30,420 a year according to the Office for National Statistics (ONS) (4).
Someone working from the age of 18 year to 65 would earn £1,429,740 (5). In anybody’s language that is a huge asset, yet according to a research and an article in COVER Magazine, twice as many people are likely to insure their mobile phones than their income. Even pets have a better chance of being insured.
For advisers, I hope that the coronavirus crisis, and our experience of living through it, makes it easier for them to get the message across to their clients about the importance of insuring their income.
Lived experience
In our sales skills masterclass we talk about experiential decision making, the theory of which states that we are much more likely to follow a course of action if we have experienced something ourselves.
Many advisers say their clients main objections are that ‘It won’t happen to me’ or ‘I will rely on my savings or friends or family if I get ill and can’t work’, but the reality is that they had never really experienced it.
Well now they have. They now know first-hand if they could or couldn’t survive, so perhaps they will understand the value in talking to a financial adviser and consider protecting their income.
With all that has happened, Legal & General’s message hasn't changed. It's still all about encouraging customers to understand the importance of financial resilience - and to take action.
Greater awareness of this and of what little support they get from state/work is of course good, but they will still need the skills and advice of a financial adviser to guide them forward in the new climate.
We want to help in this process through our skills/development classes and we have continued this journey by working with COVER to publish this educational and interactive ebook.
Income protection is one of the tools in an adviser’s kit bag to help build financial security - and hopefully one they'll turn to more often in the future.
Richard Kateley is Head of Intermediary Development for Legal & General
Sources (1) bbc.co.uk/news/business-52721657 (2) legalandgeneral.com/files/library/protection/miscellaneous/d2bexecsummary.pdf (3) gov.uk/statutory-sick-pay (4) ons.gov.uk (5) ons.gov.uk
"The biggest thing we have learnt from the coronavirus crisis is that having a financial back-up plan is vital to help through difficult times"
The importance of a good financial backup plan and the value of financial advice
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"There are a couple of good things that have come out of the pandemic from a financial awareness perspective"
Richard Kateley
