Four ways income protection can flex to the changing needs of clients

Published: 08/06/2023

As a client’s life and circumstances change, it’s crucial that any protection cover they have in place remains suitable for their needs. As people’s lifestyles and working habits change - with everything from multiple job hopping to starting a family later in life now increasingly the norm – income protection (IP) plans need to be able to flex and adapt over time, writes Vitality's Adviser Editor Rob Harvey.

Accelerated in recent years by the pandemic, the world of work and the way people live their lives has changed considerably.

It’s now increasingly common for example for people to change jobs or even career multiple times during their working life¹. There’s also been a rise in the number of people in self-employment², or working multiple jobs with a so-called ‘side hustle’³.

Elsewhere we see changes in people’s lifestyle habits, particularly people choosing to have children later in life⁴ and an increase in the age of first-time buyers.

1. Flexibility over time

With income protection typically intended to provide long-term protection, many of the changes in the way people live and work will have implications for the suitability of any product recommendation.

Given the increased likelihood that a client’s circumstances and needs will change at various times during their life - whether through a change in job, their family or living arrangements - there’s every possibility that adjustments will need to be paid to their IP plan at different stages during their working life.

Products therefore need to offer the necessary flexibility to enable clients and their adviser to adjust the cover where necessary, without having to go through the hassle of fully re-applying for cover.

Furthermore, ensuring products can flex and adapt to meet a client’s changing needs will have added importance with the upcoming Consumer Duty regulations.

Reviewing the ongoing suitability of a recommendation and adjusting where necessary to meet new client needs will form a key part of advisers delivering good client outcomes and avoiding foreseeable harm.

2. Protecting clients against fluctuating income

Given the increasing commonness for people to change jobs and career multiple times, as well as the rise in self-employment, many clients will experience changing and fluctuating earnings during their working life.

With changing earnings comes the risk that a client may end up over-insured, if their income drops below the level required to be eligible for the full monthly benefit they’re insured for.

Advisers can mitigate this risk by maintaining regular contact with their clients and conducting annual reviews. If a client’s earnings have dropped, their cover can be adjusted accordingly.

Most IP plans also include a minimum benefit guarantee, providing a safety net against the risk of reduced earnings impacting the monthly benefit payments in the event of a claim. The drawback however is that the minimum benefit may be less than the client insured themselves for, particularly in the case of higher earning clients.

The ultimate solution can be to future-proof the client’s IP plan and lock-in their full monthly benefit up-front, by providing financial evidence at the time of applying.

Up-front financial underwriting is still extremely uncommon on IP plans though and Vitality’s earnings verification option remains unique in the market. This allows clients to provide earnings evidence within 6 months of their plan going live and to lock-in 100% of their monthly benefit, up to a maximum of £8,000 per month.

Up-front earnings verification gives both advisers and their clients peace of mind that their IP monthly benefit is guaranteed in the event of a claim and their plan is protected against any drop in earnings that may arise if their circumstances change.

3. Expanding the scope of GIOs - greater flexibility at key life events

Guaranteed insurability options (GIOs) can be an effective way of making changes to a policy, without the client having to undergo new medical underwriting (which could be problematic if their health has changed since taking out the plan).

Typically, GIOs cover common life events like the client getting married or divorced, having a child or taking out a mortgage.

The drawback to GIOs is that traditionally they only allow for an increase in monthly benefit. Whilst this makes sense if the client purchases a property or has a child, there may be life events where other aspects of the plan need to be changed.

With Vitality’s new Income Protection Plan the GIO options have been uniquely expanded, to allow clients to not only increase their monthly benefit, but also reduce their defer period or increase the term of their plan.

Alongside the traditional GIOs, if a client changes their job resulting in a reduction in sick pay, or any group IP they’ve covered by alongside their own plan is altered, they can reduce their defer period.

For clients with a mortgage, if they increase their mortgage term they’ll also now be able to increase their policy term.

Like an increase in benefit, these changes are generally treated as increase in risk to an insurer, so without these unique GIOs clients would have to re-apply for their cover or the changes would be subject to medical underwriting.

4. Adding and removing child cover when needed

As we’ve written about previously, given the impact that a child falling ill can have on the parents, both emotionally but also financially, children’s cover should not be ignored.

Whilst traditionally only available as a benefit alongside adult critical illness cover, Vitality is one of a small number of insurers to offer a children’s benefit as an optional bolt-on to adult income protection cover (without the need to purchase Serious Illness Cover).

With more people choosing to have children later in life though, it’s also important clients have the flexibility to add and remove children’s cover whenever the need arises.

Vitality’s unique Child Serious Illness Cover for example is a separate stand-alone benefit and can be added alongside an IP plan at any time, if the client decides to start a family.

What’s more, as a stand-alone benefit clients have more choice over the amount of children’s cover they select, with the option to insure up to £100,000 if required.

Providing clients with the necessary flexibility and product features that can adapt and change as their needs and circumstances change is key to delivering good outcomes and IP benefits that remain relevant throughout their working life.

By allowing products to flex and change we can also more broadly better respond to the growing trends in the way people life and work. This can help to give advisers confidence that IP is the right solution for their clients and will properly meet their needs.

Find out more

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