In a new weekly series, protection adviser Matthew Chapman shares his income protection secrets
In my last article, I wrote about the importance of discussing the maintenance of regular income with clients when offering income protection (IP).
To help advisers gain more confidence when discussing income protection with their clients, I've teamed up with COVER to share a series of techniques and top tips that I use to make IP far more relatable, easier to understand and invaluable in the eyes of clients.
Tip One = "5% for furlough"
When discussing the cost of income protection with your clients, it all comes down to the positioning. No one wants to spend money unnecessarily. So as advisers, our job is to highlight not just the importance of the plan but to position it in such a way that the perceived value is unquestionable.
In my previous article, I compared income protection to the furlough scheme. Both are designed to pay you a percentage of your income whilst you are unable to work. The main difference being that one is likely to end in October whereas the other will pay out to retirement and for anything that stops you working, not just Covid-19.
Furlough is a topical and relatable way in which you can explain income protection and help clients to see the value of this type of plan. When discussing cost, ask the clients what they would pay for permanent furlough protection?
Recently, I have taken this one step further with some clients. Having established the amount of replacement income the client needs to maintain an acceptable level of lifestyle, I asked them to imagine I had just placed that amount, in cash, on the table in front of them. I then asked them to tell me, from that same pile, how much they would be prepared to pay for me to continue to hand over the same cash every month. £50? £100? £200?
This process is designed to get the client to visualise the benefit and recognise the relatively low monthly cost when given an indicative premium. Often, the amount they were prepared to pay, ends up being considerably more than the actual cost of an equivalent plan.
As a rule of thumb, I tell clients that if they allow around 5% of their net income each month, this should be sufficient to cover the cost of a plan that would replace the majority of their income and up to their anticipated retirement age.
I bet most people wouldn't accept a 5% cut in pay. But 5% for Furlough? 5% for permanent financial security? Sounds like good value to me.
Matthew Chapman is business & practice protection expert at Plus Protect. Find him on LinkedIn.