For financial advisers only. An espresso guide to selling income protection

Transcription

1 For financial advisers only An espresso guide to selling income protection

2 Income protection: why it matters At LV= we believe everyone should be supported if they re ill and can t work, through quality financial protection which pays out when it matters. But, we know income protection can be (unnecessarily) complicated, especially if you don t recommend it often. This easy-to-understand and jargon-free espresso guide aims to give you a better understanding of income protection, how it works and the benefits to both you and your clients Income protection: in a nutshell The different products available Features and options made simple Stats and facts to support your recommendation Things to look out for Income protection vs. critical illness The size of the prize Quick provider comparison guide

3 01 Income protection: in a nutshell Income protection is an everyday essential which works when your client can t. The cover pays an ongoing, regular benefit, helping minimise the cost and impact ill health can have on clients (and their families). What s the real risk? According to Which? (the consumer advice magazine) income protection is the insurance policy every working adult should consider, because no matter how well you feel today, ill health or an accident can happen to anyone, at any time. How income protection can help Income protection covers a percentage of earnings (typically 50-60%) which is paid directly into your client s bank account, tax-free*. They can spend the money on anything they want, from the essentials to the fun stuff, helping them cope financially with day-to day-living costs, and those unexpected extra expenses. Each year 1 million people suddenly find themselves out of work due to an illness or accident. 1 in 3 households have no savings to fall back on if sickness or injury strikes. Source: Association of British Insurers, 2014 Source: Office of National Statistics, *Any references we make to taxation are based on our understanding of current legislation and HM Revenue & Customs practice, which can change. An espresso guide to selling Income Protection

4 02 The different products available Although the concept of income protection is simple, there are various types of product in the market. Traditional income protection - for clients in less risky jobs Think office workers or professional occupations (such as accountants) where the risk of occupational injury or illness is low. The price doesn t increase with age and the insurance keeps paying out until your client is well enough to go back to work - no matter how long it takes. Specialist income protection - for clients in riskier jobs For people in occupations that are more expensive to insure, like construction workers, nurses, teachers and the self-employed. The price increases with age ( age-banded or age-costed premiums) making it more affordable for many clients. This type of product is often referred to as manual income protection. Short-term (or budget) income protection - for price sensitive clients These products have a fixed maximum pay-out or claim period (typically, one - five years). Income protection with unemployment cover - full financial protection Additional protection against involuntary redundancy. Unlike accident, sickness and unemployment insurance (ASU), your client s covered until they re well enough to go back to work, and the cost can be guaranteed from the start.

5 03 Features and options made simple Waiting period This is how long your client could wait before their income protection policy starts paying out. You can choose to base this on their level of savings compared to their monthly outgoings, or how much employer sick pay they re entitled to. Guaranteed or reviewable premiums Income protection with guaranteed premiums is when the price stays the same throughout the length of the policy. Reviewable policies start out slightly cheaper compared to guaranteed cover, although the price might increase in the future. If price isn t an issue, recommending the guaranteed option will ensure no unexpected price increases in the future. Amount of cover Assessing your client s monthly outgoings will help you recommend the right amount of cover. The more cover they have, the higher the premiums, so if some of their outgoings aren t vital (like holiday or days out) you could recommend a lower level of cover with your client cutting out non-essentials whilst they re claiming. Or, if your client s partner works and contributes to the household income, you could recommend enough cover to pay a regular outgoing or debt (like the mortgage or rent). Length of cover Typically, you would look at protecting your client until retirement. Or, you could look at the policy ending in line with their mortgage (providing of course they d still be able to cover their other monthly outgoings). Top tips Go through your client s contract of employment to find out what sick pay they re entitled to. You can then choose a waiting period based on when they stop receiving employer sick pay. Many providers have budget planners you can use with clients to show them how much they spend every month. Many people seriously underestimate their outgoings, so getting the figures down on paper can be a really effective way of showing clients what s at risk. An espresso guide to selling Income Protection

6 04 Stats and facts to support your recommendation 10.8 million households (more than 60% of working families) would be entitled to little or no state support if the breadwinner had to stop working. Source: Centre for Economic and Social Inclusion (CESI) 32% A 30-year-old male who doesn t smoke has a chance of being off work sick long-term. 44% A 35-year-old female who smokes has a chance of being off work sick long-term. Source: Results from the LV= Risk Reality Calculator Currently, 2million UK adults are claiming sickness and incapacity benefits. Source: Office National Statistics Income protection policies pay out. In 2013, 91% Source: Associations of British Insurers of all claims were paid.

7 Income protection is surprisingly affordable is the monthly premium for: A 30-year-old admin manager 1,500 month cover (level) Two month waiting period Cover ends at age 65 Source: LV= Income Protection, correct as at October 2014 Less than half of employers offer sick pay over and above the minimum statutory requirements. Source: Centre for economic and social inclusion (CESI) 43% Put into context, that s less than: Meal for two Or Weekly trip down the pub Family trip to the cinema Daily cup of coffee (over a month) The current Employment & Support Allowance government benefit claim form is a mammoth 57 pages long. End-to-end, that s the same height as 3 giraffes! Put into context, LV= s income protection claim form is just 7 pages long. An espresso guide to selling Income Protection

8 05 Things to look out for Definition of sickness When getting a quote, it s important to understand how sick your client has to be before the provider will pay out. This is called the definition of sickness. Wherever possible, you should choose a policy with the own occupation definition, as it offers your client the best chance of making a successful claim. Under the own occupation definition, the provider will pay your client if ANY illness or injury stops them from working. You should also check how long the definition is valid for (for example, is it valid for the full claim or just the first year?). State benefit deductions If your client is sick and can t work, they ll expect the state sickness benefits they think they re entitled to. However, some providers will make deductions to the benefit they pay if your client does receive state help, so this is something else you should look out for. Standard exclusions A number of providers have standard exclusions, meaning they won t pay a claim if it s related to a specific condition. For example, some won t pay a claim if it s related to HIV or Aids. This is something you should check to ensure there are no nasty surprises for you or your client at claim. Keeping up with the cost of living Income protection offers long-term financial security, so it makes sense to protect your client s benefit against the risk of inflation. This is called the indexation option. When comparing products, check what approach the provider uses and make sure it s fair and transparent. Some insurers simply increase how much your client pays and their benefit by the Retail Prices Index. Others increase the price at a higher rate, leading to steeper premiums in the future. It s worth remembering if a client chooses level cover, the amount they d get at claim is fixed and won t change in the future. It also means their benefit will buy them less in the future. The maximum amount of state sick pay support your client would be entitled to is just a week - considerably less than the average household weekly spend. 1 Based on an adult aged 25 or over receiving Employment Support Allowance (and in the support group) 2 Family Spending Report, 2012 (Office National Statistics)

9 06 Income protection vs. critical illness In an ideal world, income protection and critical illness should be recommended together, as each product protects your client against a different risk. Although being diagnosed with a life-threatening condition is devastating, it s far more likely a less serious illness or injury will stop your client from working. And if it does, the financial consequences can be catastrophic. How to bring down the cost: skiing downhill If income protection and critical illness combined is too expensive for your client, there are ways to bring down the cost: Recommend short-term income protection (sometimes called budget income protection) Suggest decreasing critical illness cover Reduce the income protection benefit Suggest a longer waiting period (income protection) Although these suggestions might not be ideal, some cover is better than none, so exploring these options are definitely worth looking at. Menu plans Some providers offer menu plans, which include various protection products bulked together at a reduced price. An espresso guide to selling Income Protection

10 07 Size of the prize Recommending income protection can take up valuable time, especially if you need to invest in positioning the need and justifying the cost. But, for many advisers, recommending income protection is as important as critical illness and life insurance. Examples of the commission you could receive Policy Client Initial indemnity amount Monthly renewal commission (after 48 months) 1,000 a month cover LV= Budget Income Protection (level) monthly premium 28-year-old, retiring 65, 12 month waiting period ( 219 over policy) 1,250 a month cover LV= Personal Sick Pay (specialist income protection, guaranteed future prices) initial monthly premium 1,500 a month cover LV= Income Protection (level) monthly premium Quotes correct as at October year-old, retiring 65, 0 day waiting period 30-year-old, retiring 65, 2 month waiting period ( 492 over policy) ( 308 over policy) And your client? Your client will be protected against the biggest financial risk they re exposed to: being out of work for two months or more because of an accident or illness. If sickness does strike, they ll be able to maintain the home and lifestyle they ve worked hard for, and can concentrate on getting better.

11 08 Quick provider comparison guide Traditional income protection Feature LV= Ageas Aviva Only use an own occupation definition of sickness No state benefit deductions No standard exclusions Fair approach to indexation Bright Grey x x Friends Life Not published L&G Pru Protect Scottish Provident x Zurich Not Published x x x x x x x x x x x x x x Budget version x x x This is a snapshot of the LV= Income Protection - provider comparison document ( ) and was produced June 2014 Specialist income protection Feature LV= British Friendly Cirencester Exeter Family Friendly Holloway Only use an own occupation definition of sickness x x No state benefit deductions No standard exclusions x x x Fair approach to indexation Budget version x This is a snapshot of the LV= Personal Sick Pay - comparison guide document ( ) and was produced May 2014 These comparisons are a brief guide only. They are not an exhaustive list of features, please see the relevant terms and conditions for full details. An espresso guide to selling Income Protection

12 To find out more about income protection from LV=, please contact your LV= account manager, visit lv.com/adviser or call Liverpool Victoria Friendly Society Limited: County Gates, Bournemouth BH1 2NF. LV= and Liverpool Victoria are registered trademarks of Liverpool Victoria Friendly Society Limited (LVFS) and LV= and LV= Liverpool Victoria are trading styles of the Liverpool Victoria group of companies. LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number Registered address: County Gates, Bournemouth BH1 2NF. Telephone: /