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Income Protection - it's time to think differently

28 April 2016 | LV= News

How protecting your client’s income can ensure good customer outcomes

Income protection (IP) can be more difficult to recommend compared to other types of cover. Clients think ‘it won’t happen to me’ and for some advisers, critical illness and life insurance are perceived as the easier sale.

Industry figures speak volumes: critical illness sales outstrip IP nearly five to one[1], despite long-term sickness being the biggest risk we’re all exposed to.

The 7Families initiative and continued provider focus has placed more emphasis on IP, and latest figures suggest sales for the first half of 2015 were up 16% compared to 2014[2]. However, more work needs to be done.

Putting income at the forefront of the advice process

At LV=, we encourage advisers to protect clients against all eventualities and recommend a full protection plan: income protection, critical illness and life insurance. We also suggest talking about ‘scenarios’, the likelihood of the event happening and how clients can be financially prepared.

Think about the LV= Risk Reality Calculator. Advisers need just four basic details (age, sex, smoker status and retirement age) to calculate the likelihood of clients:

  • Being unable to work for two months or more (due to illness)
  • Suffering a serious illness
  • Dying
  • And the probability of any of these happening before retirement

The calculator doesn’t mention ‘products’ and instead focuses on the chances of these events happening. Talking about scenarios (long-term sickness, suffering a serious illness) at the start, then confirming the chances of them happening, should make it far easier to then introduce the solution.

We recently surveyed more than 700 advisers to find out their views on IP. Of those who regularly sell it (500 advisers), 25% use the Risk Reality Calculator as part of their recommendation process[3].

The LV= Risk Reality Calculator: an adviser’s perspective

“The LV= Risk Reality Calculator is a great tool which I use to help introduce protection needs to my clients. Many of them expect to discuss their life cover but often do not realise the far greater need for income protection and critical illness cover. The calculator is quick to use, easy to understand and personalised for each client. A great tool which has become an intrinsic part of my protection chat.”

“I am a huge fan of the LV= Risk Reality Calculator. Very refreshing to have a provider supplying such a powerful tool that can be personalised towards clients to highlight the everyday risks we all face. Already, this has led to a pickup in my protection business and it’s proved a great starting point to engage clients and let the stats do the talking”.

Our research also identified budget planners as the most popular tool when recommending IP, helping clients visualise their financial commitments and how income is the thing that holds it all together. Another popular way of showing clients how much they have to lose is to use an income shortfall calculator. This type of tool is used by a third of advisers who sell IP. It shows clients what their income would fall to if they didn’t have the right cover in place and had to rely on state benefits alone.

DINKYs, DINOs and the growing IP opportunity

You might have heard of DINKYs (Double Income, No Kids Yet), but what about DINOs (Double Income, No Options households)? DINOs are households of cohabiting couples who are dependent on both incomes to make ends meet, and there are an estimated 3.2 million in the UK[4], highlighting the traditional family model (dad works and mum stays at home to look after the kids) has changed. The financial risks for DINOs are very real: a couple, both aged 30 have a 64% chance of one of them being unable to work for two months or more before they retire[5], representing a significant IP opportunity for advisers.

According to our annual Cost of a Child survey, the average cost of raising a child from birth to age 21 now takes up more than a third (38%) of annual household net income, demonstrating IP should definitely be discussed with clients who have children. And if they’re planning on starting a family in the future, it's still worth discussing protecting income as the premiums get more expensive with age.

Ski downhill

Recommending cover to protect against all eventualities is fine in principle, but for some clients, simply isn’t affordable. If price is an issue, there are ways to bring down the cost - we call it ‘skiing downhill’ at LV=.

  • Choose a ‘budget’ plan. These products can be significantly cheaper than ‘full’ IP and operate a limited claim payment period – two years with LV=.
  • Increase the waiting period. It's a good idea to base cover on how long your client can wait before their policy pays out - looking at employer sick pay entitlement or savings is a good place to start.
  • Reduce the cover. What monthly IP benefit does your client need, rather than want? If some outgoings aren’t vital, 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)
  • Reduce the IP term. Does your client need cover for a particular period only? You could look at ending the policy in line with their mortgage for example.
  • Recommend decreasing life and critical illness. If your client has a repayment mortgage, recommending decreasing life and critical illness cover should free up some budget for IP.

Wake up to IP: Part Two

Last year, more than 2,000 advisers attended our Wake up to IP events. Designed to help overcome common objections against IP, the seminar programme was supported by one-to-one ‘conscience coaching’ from the LV= account management team.

The events explored the state benefit system, helping advisers understand the complicated claim assessment process. For example, the Employment Support Allowance application form is 57 pages long, and end-to-end, measures higher than 2½ giraffes.

Some of the advisers who attended saw a significant uplift in their (LV=) IP business, and our latest research suggests there is still plenty of appetite for more training events.

So we’re organising a series of new roadshows and have updated the content to make it even more compelling, and real, for 2016. Wake up to IP: Part Two will focus on helping advisers deliver good customer outcomes, and give them the tools to recommend cover to protect against all eventualities.

Let’s make a commitment and talk about protecting income in a different way

IP doesn’t have to be the poor relation of the protection family. If you’re struggling with getting recommendations over the line, or simply feel like refreshing your existing advice process, visit the LV= Adviser website, where you’ll find our Risk Reality Calculator, IP espresso guide and details of our new training seminars.

  • [1] Mintel, based on 2014 policies sold
  • [2] Gen Re’s Protection Pulse, 2015
  • [3] LV= income protection research, conducted February – March 2016
  • [4] Research was carried out by Opinium Research on behalf of LV= in October 2015. Find out more at:
  • [5] Results based on a non-smoking male and female couple both retiring at age 65 as calculated by the LV= Risk Reality Calculator

Liverpool Victoria Financial Services Limited, registered in England with registration number 12383237. County Gates, Bournemouth, BH1 2NF, UK