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Income Protection

Critical Decisions: Income Protection & Critical Illness

What are your client’s outgoings?

  • Ask about your client’s regular commitments, including utility bills and school/university fees.
  • Consider debt, such as mortgage, car finance, credit cards and other loan repayments.
  • Your client should remember to include debts of others in the household, whether held jointly or individually.

How would your client manage a sudden illness that left them unable to work?

  • Half of those people born since 1960 will have to deal with a cancer diagnosis in their lifetime.
  • People undergoing cancer treatment are £570 worse off each month on average.
  • The difference isn’t just attributable to loss of income, but to additional costs such as travel for treatment and extra fuel bills: 21% of cancer patients see their annual energy bill rise by almost £200 on average.
  • Around a quarter of stroke victims are people of working age.
  • Every year, one million people are unable to work due to a serious illness or injury.

How would your client’s earnings and lifestyle be affected?

  • Three-quarters of UK workers would struggle to afford utility bills if their income dropped by £570 a month – the average loss of income following cancer diagnosis.
  • 45% would need to apply for state benefits to get by financially.
  • Encourage your client to consider all outgoings, from the weekly food shop to leisure and holidays – which are essential and which dispensable?

Is your client aware of the limits of statutory protections?

  • 43% of employers reduce an employee’s wages to statutory sick pay after two weeks of absence through illness.
  • One firm in six (16%) switches to statutory sick pay after just four days’ absence.
  • Workers are eligible to receive statutory sick pay for up to 28 weeks, at £89.35 a week7 – less than a fifth of the average UK weekly wage.
  • Bonuses are at risk too: a fifth of firms that pay bonuses withhold them if an employee is on long-term sick leave, and a third pay bonuses pro-rata based on days worked.

Who earns what in your client’s household?

  • Encourage your client to analyse the need for protection for their partners or other earners – even if they are not the main contributor, the loss of their income might have a bigger impact than they imagine.
  • Since 2010, the number of men working past the age of 65 has increased by more than 270,000.
  • Women account for half the UK workforce, but over 50% have not taken out individual protection.
  • 49% of women estimate their household would lose up to £25,000 a year if they fell ill, and 27% would lose a higher amount.

What would your client’s financial priorities be if they were suddenly unable to work?

  • A 1% interest rate rise would add £930 a year to the average mortgage, according to analysis by Savills.
  • If paying off a large mortgage or other debts would be the biggest concern, critical illness cover is a possible option.
  • Where ongoing bills and fees over many years are at the forefront, explore the potential of income protection.
  • Ensure the client is aware of the potential for blending different types of cover, if affordable, to meet competing needs.

What lifestyle issues need to be accounted for?

  • The average age of new income protection claimants in 2017 was 48 for Aegon12 and 42 for Legal & General.
  • Define all existing health conditions – ensure your client is aware of the need for full disclosure.
  • If your client smokes, has smoked, or uses nicotine replacement products, discuss providers whose cover can avoid penalties.
  • Where relevant, consider policies offering discounts for healthy lifestyles.

What factors will affect your client’s choice of protection?

  • For critical illness, clarify the relative values of the number of conditions covered by a policy, and the likelihood of a claim for each.
  • The most common reasons for critical illness claims paid by Royal London in 2016 were cancer (63%), heart attack (10%) and stroke (6%).
  • Explain the wider benefits of income protection, for example to cover a broken leg or back injury.
  • Consider whether or not your client meets all eligibility criteria for their desired policy.
  • The most common reasons for income protection claims paid by LV in 2017 were musculoskeletal injury (44%), viral or respiratory illness (16%) and mental health conditions (11%).
  • Explore policies offering rehabilitation, counselling, and other forms of support to get back to work, if this is a client priority.

What other key issues shouldn’t be missed?

  • Check for waiver of premium – critical illness policies are less likely than income protection to continue to collect premiums while paying a claim.
  • Make your client aware that protection insurance benefits can affect state benefits.
  • Check if premiums are guaranteed throughout the policy, linked to age or inflation, or reviewable.
  • Emphasise the need for regular reviews to help ensure cover reflects the client’s changing income.
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