Protecting the value of income

Benjamin Franklin once said that in this world nothing can be said to be certain, except death and taxes.

But when it comes to the world of insurance there are other so-called certainties, such as: on the whole people do not want to buy insurance and the existence of an optimism bias means that people are more likely to buy life insurance than take out a policy that protects their income if they are unable to work for a sustained period of time.

Although, unfortunately, death is a certainty for all of us, the chance of dying before retirement is far lower than the chance of suffering ill health.

It is too soon to say what impact the new government will have on the welfare benefits available. However, as it stands, the employment and support allowance (ESA) that the over-25s receive is £73.10 per week (£317 per month).

This is hardly a king's ransom, but 93% of applications were initially unsuccessful. Although some may eventually be overturned on appeal, it means that many are left in limbo at a time when they are financially vulnerable. That is ignoring the fact that the application form for ESA is more than 57 pages long.

Off-putting figures

The figures are startling, but with income protection (IP) sales still routinely being outstripped by life and CI sales, it is clear that they do not encourage much action.

One may be surprised at the discovery, but it is not enough to make them purchase a solution that mitigates the risks they potentially face. So how do we get people to engage with the products?

If an optimism bias prevents people from taking out protection (as they hope, or do not think they will ever need to claim on it so they deem it an unnecessary purchase), perhaps we need to adopt a carrot rather than a stick approach.

The financial safety net income protection provides claimants is an easy way to demonstrate in a quantifiable way the value of these products, especially to those clients who are concerned that these policies are too expensive.

Additional benefits

However, speaking to advisers it is clear that there are certain clients who may be more interested to hear about the additional benefits these policies afford them.

Many protection policies have benefits that policy holders can access without having to make a claim, such as a discount on other insurance policies they require including travel, home and motor insurance.

Certain policies allow clients to reduce the cost of certain lifestyle subscriptions and memberships. At LV=, clients who buy a protection policy, be it IP, critical illness cover or life insurance become members, which gives them access to a team of doctors and nurses through our health and wellbeing service, qualified counsellors, solicitors and legal executives.

While clients can get these services through other channels away from LV= and other insurers, it has helped some advisers to engage clients as they can see a benefit of a policy that doesn't require them to imagine becoming financially vulnerable.

As an industry, that was created to help people look after the things they love: these non-financial additions can help make these products more relevant to people.

Insurance can feel very detached from people's lives, and at present the industry relies heavily on financial advisers to make protection relevant for consumers, but it is clear that the whole industry needs to focus on making protection more relevant and get people to emotionally engage with what protection products are offering them.

As providers, we have a duty, not just to create valuable propositions, but make it clear how they can improve the lives of those that buy them.

We have found that many advisers and their clients are impressed by our claims and rehabilitation service which seeks to empower those who wish to return to the workplace, whether it be to take up the same career or do something completely different.

Case study

An example that has had a particular impact when demonstrating the strength of our proposition to advisers is the case of an architect. He had been absent from work for three years due to a severe brain haemorrhage.

This client felt demoralised about the fact that he could not work, but was unable to return to his original post. We provided him with access to a neuropsychologist to help aid his recovery, and while he hasn't been able to return to his old career he has set up his own business.

Helping him to return to work has boosted his morale as he saw that we didn't view him simply as a claimant but as someone who needed support to help him return to what he considered to be normality.

We are working in an industry where very few things are black and white, and a one-size-fits-all approach doesn't work. We need to ensure that we tailor our messages accordingly so they chime with the range of clients that advisers have.

Understanding their different drivers helps them view these products as valuable. and encourages them to protect their lifestyle.

Myles Rix is managing director of protection at LV=