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Insurance Review: Income protection is the better bet

conner-tom

Nearly twice as many British people have CI cover as have IP – but IP includes everything within a CI policy and more

Too many of today’s 32 million working Brits are gambling that their health will hold out until they retire. We believe at least six million of them could lose the bet.

Our 2017 Wealth & Protection Survey underlines this fact. We found that only 37 per cent of working people had life insurance, despite the fact 62 per cent had children and 43 per cent still had a mortgage. Meanwhile, only 11 per cent had critical illness cover and just 6 per cent had income protection. Unfortunately, there is a 20 per cent chance of the average person being out of the workforce for three months or more due to ill health.

Thanks to its inclusion as a common mortgage ‘rider’, nearly twice as many people have CI cover as have IP. The problem is that, on paper at least, IP should come higher up the pecking order.

This is because most of us have nowhere near the savings we would need to make ends meet if we were suddenly unable to work for an extended period. This year’s survey found that more than 57 per cent of working people had less than £5,000 in cash savings.

Remember: IP covers everything included in a CI policy, as well as a host of other, far more frequent, health problems. It also protects the most important asset in any client’s finances: their income.

In the past, IP was often too expensive for most people, especially as part of their mortgage protection package. But modern policies that offer flexibility around benefit levels and deferment periods are also far more competitive cost-wise – making IP, especially for younger applicants, a viable alternative to CI cover.

Our research also underlined that, however poorly the average working person might be faring, things were far worse for the average self-employed, especially for adequate insurance cover.

Just 25 per cent of self-employed people have life insurance, while only 5 per cent have CI cover and just over 1 per cent have IP. This is troubling because the self-employed naturally have a far greater need of IP than do other types of worker.

Of course, times are hard for the average self-employed person, with nearly two-thirds of those we surveyed describing their finances as “just about managing” or worse.

However, with an estimated five million self-employed people and a one-in-five risk of being unable to work for three months or more, one million are set to find out if they can still “just about manage” when they suffer long-term illness.

Tom Conner is director of Drewberry Insurance

NEWS IN BRIEF

Mortgage solution
Mortgage Force has adopted iPipeline’s SolutionBuilder. The research, quote and apply solution has one screen that enables advisers to map budgets, costs and benefits to clients, as well as review multi- and single-benefit sol­utions. Mortgage Force can access SolutionBuilder via its chosen CRM, The Key.

Favoured benefits
Research by Epoq Legal shows staff welcome benefits that support individual responsibility. Over 80 per cent value pension, health, legal and protection services, way ahead of gym membership (62 per cent) and childcare vouchers (41 per cent).

Insurance challenger
Entrepreneurial start-up company Gryphon Group Holdings Ltd has raised £180m to design and build an insurance challenger. The firm believes its fresh approach can grow the market. The infrastructure will be based on digital and cloud technologies.

Insurers catch up
Insurance companies (life and non-life) have accelerated efforts to keep pace with the changing market and are gaining on other financial sectors, according to PwC’s 2017 Global FinTech survey. Half of insurers regard their industry as the second-most likely sector for disruption, after consumer banking.

Tip of the month

Royal London removes HIV test requirement

Good news for clients applying for large-sum assured policies and seeking a simpler process: Royal London has removed the need for an HIV blood test for non-medical limits.

This used to be an automatic requirement when underwriting these policies but it has been removed for all customers regardless of cover and sum assured and takes effect immediately. The requirement was removed because incidence rates had reduced while survival rates had increased.

Royal London is the first company to announce this change to its underwriting philosophy.

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  • Chris Hulme 21st July 2017 at 5:25 pm

    Tom makes a valid point with IP being the poor and much maligned relation to critical illness cover but I would draw caution on the claim “Remember: IP covers everything included in a CI policy, as well as a host of other, far more frequent, health problems.” In 2016 a client of mine had a claim for skin cancer paid out by Friends Life on a policy incepted in 2015 – he was only off work for three weeks.
    The reality is we just don’t know what may or may not affect a client in the future and as such both IP and CIC are equal stable mates.

    • Carl McGovern 25th July 2017 at 1:42 pm

      Absolutely correct and the same has happened to three separate clients of mine. I guess its a case of balancing both, as a CIC claim could pay a lump sum, when a client is not off work for too long and by the same token, a none CIC illness could occur that keeps a client off work for a heft period of time. It isn’t always easy, especially when under normal circumstances, you are working within a budget range.