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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.
Income Protection Download

98% of protection insurance claims presented in 2017 were paid out upon claiming2. BOOK YOUR REVIEW UK insures pay out £9.9m every day for protection policies. BOOK YOUR REVIEW £96.35 statutory sick pay is only £96.35 per week for a period of up to 28 weeks. BOOK YOUR REVIEW £68,000 the average value of critical illness claims paid in 2016 was £68,000. BOOK YOUR REVIEW 40% Inheritance Tax (IHT) is applied on assets worth over £325,000 BOOK YOUR REVIEW 8.9 of every 1,000 opposite-sex marriages end in divorce BOOK YOUR REVIEW £33,904 is the annual cost of residential care in the UK, this can rise for more complex needs BOOK YOUR REVIEW £63,224 is the average cost of raising a child between 1 and 4 (discounting private education) BOOK YOUR REVIEW £40,000 Those who receive financial advice accrue an average of £40,000 more than their counterparts BOOK YOUR REVIEW £231,843 According to research, raising a child costs an average of £231,843 BOOK YOUR REVIEW £6,000 2017 studies show that retirement income is more than £6,000 per year higher for those who plan ahead with an adviser BOOK YOUR REVIEW 137m working days were lost due to sickness or injury in the UK during 2016 BOOK YOUR REVIEW 50% of UK citizens born after 1960 will be diagnosed with a form of cancer at some point in their lifetime according to Cancer Research UK BOOK YOUR REVIEW