When selling protection, IFAs may have to ditch hard facts and be more aware of the clients' needs - especially over their savings, says Louise Colley
Even if they received a £10,000 windfall, the report’s respondents said they would first pay off unsecured debts (44%), then start to or put money into an emergency savings account (30%), and finally start to or put money into a long-term savings account (30%). Only 5% said the money would incentivise them to take out life insurance, critical illness cover or income protection.
So far, so worrying. So what can financial advisers do to persuade families of the importance of prioritising the protection of their family against sudden loss of income?
It is not simply a matter of explaining the facts which can easily disprove these prejudices. For example, Aviva’s own data shows life insurance costs from as little as £5 a month and 99% of its life insurance claims are paid out.
People and families do not always respond to dry facts.
It is proven that the most effective way to break through this is through an emotional connection. Something needs to strike a chord with them, so the question to ask people is not why don’t you have protection insurance, but what is the most important thing to you? The first answer is usually their family.
An example of how powerful this can be is shown in the reaction to Aviva’s recent television advert, which had the twist at the end where it was revealed the lead character, played by Paul Whitehouse, had actually passed away. Emotionally disturbing, yes, but undeniably powerful. Since it first aired, there have been many reports of consumers making appointments with advisers to take out life insurance and specifically mentioning this advert as the trigger. If a TV advert can cause this reaction, then it shows how effective it can be to help them make an emotional connection with what they are actually protecting.
Overcoming the obvious inertia requires financial planning at the right time and in the right order to accomplish the end goal of financial security and diversity.
Hierarchy of needs revisited
Another proven method is to use a version of Maslow’s Hierarchy of Needs adapted to show financial planning needs. The theory is presented in the shape of a pyramid broken into layers, with the largest and most fundamental needs (such as physical needs – at its most literal, what someone needs to survive) at the bottom and the need for self-actualisation (or fulfilling one’s maximum potential) at the top.
The most fundamental level of the pyramid features society’s most basic needs – food, water and shelter – without which we cannot survive. Maslow theorised that the most basic level of needs must be met before an individual will strongly desire the secondary or higher-level needs. By adapting this to financial planning needs, the most basic level includes bank and savings accounts. With the level of savings in the UK so low, it’s no wonder people feel anxious and unable to spend on other areas such as protection.
With families who do not have any, or make very little regular savings, this is the first hurdle to address. Recognising those basic needs will help people take control of their finances. As families get used to regular saving and budgeting accordingly, they naturally become more likely to want to protect this. The role of an adviser in this situation is to help them to move onto the next level of the pyramid.
The second tier contains the protection element. This includes life insurance, private medical insurance, critical illness and income protection. Advisers’ task here is to help families understand that they need to protect what they have before they look to accumulate more.
With the basics in place, people can begin to look at mid-term investments, such as ISAs, stocks and shares investments, property, and fixed-term bonds. Bypassing the protection stage and moving straight to this level is still dangerous as they may not be liquid enough or large enough to provide for the family over the long term.
The pinnacle of the financial planning pyramid is pension, tax and estate planning. Retirement planning logically requires the foundation of some of the other elements first as people still look to immediate and short-term needs before they look to their long-term needs.
Different family groups all face different economic pressures. But one thing that links all families is a desire to protect loved ones from unforeseen shocks. Therefore, the bedrock of any financial planning should be to look at what measures are in place in case the worst were to happen. If this is ignored, then any financial plans are essentially set in sand with no firm foundation and are more likely to be either ignored or cancelled.
Louise Colley is head of protection marketing at Aviva
