I have noted an increase in the proliferation of short-term income protection (IP) policies, and have several clients preferring it to full IP. Given the return-to-work statistics for the longer-term sick, I worry about selling these products to people who could afford full IP, as they are used as a replacement for PPI by some bancassurers. Could this issue return to bite me at a later date?
Steve Casey, Friends Life
This is an interesting point. On the one hand you have to applaud the fact that clients understand the need for income protection. However, you do have to question why, if you say that they can afford full cover, they are not protecting themselves properly by taking out that full cover.
Of course, there are several differences between short-term products and PPI covers, not least in the areas of exclusions within the product design and short-term income protection is a far more comprehensive product.
I suspect that a lot of their thinking will be around their own perceptions of their chances of being off long-term sick and their own motivations.
So again, your approach to outline the issues by using long-term sickness statistics is a correct one to demonstrate that none of us is invincible and that long-term sickness can have a major impact on your clients and their families.
Ideally, a full IP plan to a pre-agreed date is the starting point. But if your clients are baulking at the cost of income replacement, perhaps they should turn this around and look at it as a lifestyle protector plan.
Ask them to list out their monthly outgoings and how they would continue to pay these if they were off sick for a long period of time.
Certainly, I would recommend a discussion with your compliance team for guidance. If your clients insist on short-term IP policies, they should look at products that give the opportunity to convert to a full income protection plan at some time in the future.
Chris Hulme, Clayton Hulme
With income protection being the lesser-known cousin of the (de)famed PPI and generally an advised sale, it is unlikely that a client chooses short-term IP over full term from their own knowledge. With ever tightening purse strings, what someone can afford to pay and is willing to pay are very different figures indeed.
Given short-term IP is now more widely available and premiums for full-term IP seemingly above most budgets (even if affordable), short-term IP is a great way to introduce a client to the thought processes of protecting income - something they may never have entertained in the past.
A ‘skiing downhill' approach leaves the adviser with an option to bring some form of income protection to the clients that - in filling the chasm between PPI and full IP - has to be better than no IP at all.
