On the case: Three real-life IP claims that challenge common objections
VitalityLife Managing Director, Justin Taurog, unpacks some recent income protection (IP) claims case studies to help debunk common client misconceptions
“I’ve never had any time off work and I don’t expect to”; “I’ll claim state benefits”; “I get sick pay through work”. These are common-enough objections that plenty of advisers will have heard.
These misconceptions, sometimes driven by behavioural biases, are part of the reason why, according to the most recent FCA Financial Lives Survey, only 6% of people have Income Protection Cover1.
Which is alarming when you consider the number of people out of work due to long-term sickness has reached record highs2 and the overall financial resilience of UK households has taken a battering in recent years.
Making progress
The good news is the industry has made progress in recent years to turn the tide of consumer (and indeed some adviser) intransigence when it comes to income protection (IP).
We’ve always known that it’s a product that should be considered the cornerstone of good financial planning and more people are now waking up to that fact.
According to the most recent ABI data, income protection sales were up 16% in 2023, with 270,000 new policies sold.
This is reflected in our own experience and following Vitality’s product enhancements in 2023 – adding greater flexibility and market-leading benefits to our IP proposition - we’ve also seen a marked increase in IP sales.
This progress is also thanks to efforts from industry groups like the Income Protection Task Force (IPTF), who have played a big role in helping to raise awareness in recent years.
Closing the IP gap
Despite that progress, there’s still a huge IP protection gap, particularly when we consider there were 32.98 million people employed in the UK in the three months to February 2024, and a further 4.27 million in self-employment.
That’s a lot of workers who either have no income protection at all or are reliant on their employer providing some form of sick pay. For the self-employed without cover, they are entirely dependent on savings or state benefits, excluding Statutory Sick Pay, which is only available to PAYE employees.
More clearly needs to be done and there’s a massive opportunity here for advisers.
Consumer Duty has rightly also been heralded as an opportunity to ensure consumers are receiving more thorough protection advice. It’s clearly no longer enough to treat protection as little more than a tick-box exercise. “Got a mortgage, here’s some decreasing term cover” won’t cut it anymore.
But we shouldn’t need the regulator to tell us this. Ensuring clients are more financially resilient and have the right protection in place is right thing to do.
Challenging consumer misconceptions
We know, though, that we still face a challenging environment, with consumer misconceptions, coupled with squeeze on people’s incomes, that’s both heightened the need for protection but also meant people are more inclined to cut back on insurances.
As an industry we need to be more bullish at facing these challenges head-on and shout loudly about the importance and value of IP, the high payout rates (almost 98%, according to our own IP data3) and the real-life examples that challenge those misconceptions and common objections.
With that in mind, and delving through some of our recent claims records, here are three real-life stories that stood out for me and that serve to counter some of those objections.
Case Study 1: Simon
Simon* was working as a self-employed electrician when he was rushed to hospital in 2015 after suffering a stroke, in his early 40s.
The stroke left Simon physically weakened and experiencing short-term memory less, tiredness and headaches. He also suffered from anxiety and low mood, all of which meant he had to stop working.
Simon’s Vitality Income Protection plan had been in place for five years at this point and the cover meant he was able to make a claim, which was paid out in full.
After a year, Simon’s condition improved and he was able to gradually return to work, but in a new role and on a lower salary. At this point the income protection payments reduced to a proportionate benefit, to top up his earnings, until eventually at the end of 2023 he was back in full-time work and earning a higher income again.
Common client misconception? “I’m young, so I’m unlikely to be unable to work due to a health condition.”
Case Study 2: Vanessa
Stuck in traffic whilst driving to work one morning, a lorry ploughed into the back of Vanessa’s* car, leaving her with multiple major traumatic injuries.
Such were the extent of Vanessa’s injuries – multiple fractures and a bleed on the brain – that the 59-year-old GP was forced to medically retire from work.
Vanessa’s income protection plan, which had been in place for over 10 years, had been set-up to align with her NHS sick-pay.
She received full sick pay from work for six months, followed by a further six months of half-pay, with her Vitality plan paying a proportionate benefit for this period. Once her sick pay finished, the income protection benefit was paid in full and remains in claim today, paying out over £5,000 per month.
Common client misconception? “I won’t happen to me.”
Case Study 3: Jo
breakups and her business taking knock during the pandemic, Jo’s* mental health rapidly deteriorated, leaving her unable to work.
Jo, who was in her mid-40s, had run a successful events business for over 20 years, travelling all over the world for work and was previously fit and healthy.
Once her mental health started to suffer, doctors prescribed her strong medication, including drugs to treat schizophrenia, but these came with serious side effects, which made things more difficult for Jo. Eventually she was placed under community psychiatric care and now has regular contact with a nurse, who visits her twice a week.
As a self-employed business owner, Jo was dependent on her income protection cover. Although she was able to claim some Universal Credit, this amount to little over £300 per month. Her Vitality income protection plan, which had been in place for over five years, pays her a further £1,300 per month and continues to claim today.
Common client misconception? “No matter how hard things get, I’ll still be able to earn an income.”
*The names of these claimants have been altered to hide their identity.
[1] Financial Lives 2022 survey: General insurance and protection - selected findings (fca.org.uk)
[2] A U-shaped legacy, Resolution Foundation
[3] Life Claims and Benefits Report, Vitality 2023.
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