So, income protection has been left out in the simple product cold. John Bridge assesses whether it will ever join the gang.
In November 2011 Carol Sergeant was asked to chair an independent steering group to develop a suite of simple, transparent and easy-to-understand financial products. The report is said to represent a milestone towards helping consumers engage with the financial services market to the benefit of their long-term interests.
The report recommends that the first set of simple products should be:
• easy access savings account;
• 30 day notice savings account;
• regular savings account; and
• fixed term life insurance.
The report further recommends further research and consultation should also be undertaken on an income replacement product that could be safely included in the simple financial product suite, that can be sold on a non-advised basis. This remains a high priority.
Income protection (IP) is essentially a simple product proposition – in exchange for a premium an individual can protect a proportion of pre-disability earnings to provide some continuity of income should they be unable to earn their living due to illness or accidental injury.
The problem is not that all IP products are complex (there are IP products in the market for all budgets and customer types). The problem is also that education is required from all parties to raise wider consumer awareness of IP in what is a highly competitive financial services and protection market.
What is needed is for government support in 2013 and beyond to raise the profile of IP to the whole of the UK workforce and to educate them on its importance.
As an example, blue collar manual workers are often overlooked by providers. For them an IP product must be affordable. A simple product will keep the core concept that IP should be financially inclusive and open to all. To be useful a contract has to be effective.
While the government wants to see simple propositions prosper it should not overlook the fact that some exist already. RDR risks making simple IP products like Holloway-style IP less accessible to those who need it most by reducing the number of independent financial advisers in the market and thus the channel by which the product is supplied to customers.
The government’s efforts to encourage simple savings and protection products are laudable, but when it comes to IP the focus should be on raising awareness among the general public and better support of the distribution channels and providers that already provide them.
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On Thursday 19 November
‘What if “the conversation” wasn’t so difficult?’
Foreword by Peter Le Beau