LV='s Mark Jones goes through the typical reasons clients may be resistant to taking out insurance and how advisers can address these.
Although the protection industry has evolved considerably, several misconceptions remain that disengage potential clients and prove a barrier when trying to sell protection.
1) Clients don't see the need to take out insurance as it won't pay
Research from Protection Review indicates that people believe that only 38 per cent of claims get paid.
However ABI figures show that in 2012, the industry paid 98 per cent of life insurance, 92 per cent of income protection claims and 91 per cent of critical illness claims. That 94 per cent of all protection claims were paid means that 147 per cent more claims were paid than people believe.
Most clients would struggle to support themselves and their family if they lost their income as a result of sickness or an accident and it is crucial that they are made aware that protection policies are valuable.
2) Protection is too expensive
It's clear from adviser feedback and consumer research that not only would clients rather grow their wealth than protect it, many also vastly overestimate the cost of insuring their income.
When cost and affordability is an issue there are options to fit varying budgets. Indeed two ways the cost of cover can be reduced to accommodate a smaller budget is by increasing the deferred period or selecting a product that pays out for a shorter period of time.
Of course, it is always important that clients are aware before they purchase cover what their options are and when their chosen policy will pay out and for how long.
3) Income protection is a con
Income protection is often confused with payment protection insurance (PPI) and the negative connotations that come with it. Therefore some people switch off when they hear about it believing they are about to be mis-sold insurance.
Whilst income protection sales are outstripped by those of life and critical illness policies, this type of insurance should be the cornerstone of any financial plan.
Regardless of whether they have a family or own their home, clients should consider income protection as the policy that can safeguard their current lifestyle if they were off work for a long period of time.
4) It's income protection Vs critical illness
The cover that someone needs will depend on their individual financial and personal circumstances. However many clients think it's a case of either or when it comes to income protection and critical illness cover despite there being significant differences between the two products.
Critical illness cover will pay out if a client suffers a serious illness, if it's an accelerated product it also pays out on death. If a client is unable to work but not as a result of a critical illness, without an income protection policy in place, they could find themselves in a financially vulnerable position.
There are many conditions which are not covered under critical illness, for example if someone has a back injury or breaks their leg and can't work they would not be covered under this policy.
5) I don't need protection as it will never happen to me
Whilst no one likes to think of themselves breaking down, unfortunately none of us are invincible. However, although sales of life cover surpass those of income protection and critical illness, statistically a client is more likely to suffer an illness which prevents them from working for two months or more than to die before they retire.
Our risk reality calculator indicates that a male 30 year old non-smoking client would have 4 times the risk of being off work for two months or more, or twice the risk of suffering a serious illness compared to the risk of dying before 65 years old.
Protection seeks to remove financial risk from a household and these facts help to better highlight the risks that a client is likely to face and the cover that they should consider.
Mark Jones, head of protection at LV=
