Consider all scenarios when advising

When thinking about your clients\' protection needs, uppermost is making sure their mortgage is covered. But this isn\'t always where their needs end. With consumer debt levels rising at an alarming rate and savings falling, people are playing a dangerous game with their finances. If serious illness or accident strikes they could find themselves falling from a great height.

So by establishing with your client that their protection needs encompass their whole lifestyle you can ensure not only is the roof over their head protected, so is their standard of living, their savings and their pension.

Of course, we all have different debt, savings and salary levels and also family commitments that will affect the level of protection we need. But there are other issues that will affect our protection needs – things your client might not have considered.

One area of financial planning sometimes overlooked is the special need of people who are self-employed. This is increasingly important as there has been a steady increase in the number of self-employed people since 2001. They now make up more than one in 10 of the workforce.

In dealing with self-employed people we must understand the issues they face. Clearly, they don’t have an employer to support them if they are too ill to work and they have to make their own arrangements for their pension and protection. But they are often well placed to do this as their average earnings are higher than that of employees.

One dilemma they face is how best to protect their income against ill health. Should they choose income protection or critical illness cover, or both? One consideration is what happens at the point of claim. If they have been trying to minimise their income for tax purposes by offsetting all allowable business expenditures, it can trip them up when they come to make an income protection claim – their income for this purpose will be based on what they submitted for tax purposes. This limits the amount of IP cover that will be effective.

And if you have worked out that IP doesn’t offer your client the protection they need, you must consider other ways to protect them. One option is to recommend additional CI with the sum assured being paid in instalments, effectively providing an income over the remaining term of the policy. Another option is to calculate the lump sum required to generate an income over an appropriate period. Protection isn’t one size fits all and it’s your job to consider all scenarios.Nick Kirwan is protection marketing director at Scottish Widows