Four ways income protection can flex to the changing needs of clients
Published: 11/11/2024
As sales of income protection cover continue to grow, driven by increased awareness and recognition of its importance, its essential products move with the modern needs of consumers, writes Justin Taurog, VitalityLife Managing Director.
Amongst the findings published in the AMI (Association of Mortgage Intermediaries) Protection Viewpoint 2024 report, the divide in how different generations view income protection (IP) was particularly interesting.
Some 65% of Gen Zs and 70% of millennials now view IP as being important, compared to 39% of baby boomers and 48% of Gen X1. Whilst there’s clearly still lots of work for the industry to do, these findings are encouraging and point to a significant opportunity to really move the dial on IP uptake.
Crucially though, we must recognise that consumer needs and expectations are changing, as are the ways people live and work.
It’s now increasingly common for people to change jobs or career multiple times during their working life2. There’s also been a rise in the number of people in self-employment3 or working multiple jobs with a so-called ‘side hustle’4.
Elsewhere we see changes in people’s lifestyle habits. Many are choosing to have children later in life5 and there’s been an increase in the age of first-time buyers6.
With that in mind, here are four ways I believe income protection must offer greater flexibility, to be more relevant for your clients’ needs:
1. Flexibility over time
Income protection is typically intended to provide long-term protection, so 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 made to their IP plan at some point.
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 and new medical underwriting.
Furthermore, ensuring products can flex and adapt to meet a client’s changing needs has added importance with the Consumer Duty regulations.
Reviewing the ongoing suitability of a recommendation and adjusting where necessary to meet new client needs, is a key part of advisers delivering good client outcomes & avoiding foreseeable harm.
2. Protecting clients against fluctuating income
With the increasing commonness of people changing jobs and even career multiple times, many of your clients will experience changing and fluctuating earnings during their working life.This brings 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.
The ultimate solution can be to future-proof the client’s IP plan and lock-in their full monthly benefit upfront, by providing financial evidence at the time of applying.
Upfront 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 six months of their plan going live and to lock-in 100% of their monthly benefit, up to a maximum of £8,000 per month.
Upfront 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.
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.
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 Income Protection Plan the GIO options go further and 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
The impact that a child falling ill can have on the parents, both emotionally and financially can be catastrophic. Its why children’s cover should not be ignored.Whilst traditionally only available as a benefit alongside adult critical illness cover, Vitality is one of a tiny 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, it’s also important clients have the flexibility to add and remove children’s cover whenever the need arises.
Because Vitality’s Child Serious Illness Cover is a separate stand-alone benefit, it can be added to a clients IP plan at any time, if they decide to start a family.
Furthermore, 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.
Keep your clients' finances in the black, and their health in the pink with our flexible, best-in-class Income Protection cover.
Where to next?
1 ‘Protection Viewpoint 2024: Making Protection Personal’, Association of Mortgage Intermediaries
2 Job-hopping Brits looking for better career progression in 2023 - HR News
3 What does the rise of self-employment tell us about the UK labour market? | Institute for Fiscal Studies
4 A Golden Age Of Entrepreneurialism: The Rise Of The Side Hustle
5 UK average age of mothers 2021 | Statista
6 First-time buyer statistics UK: 2024