Income Protection – More a Service Than a Product
Income protection has always been the Cinderella of the protection product family – always left at home when the others go to the ball. And yet, income protection is one of the most useful protection products, providing a level of income that enables households to keep going when the wage-earner has been diagnosed as unfit to work. And while the need for it should be obvious, it remains a fact that only 10% of the UK population has taken out a policy to insure their income. Yet, by contrast 71% of people insure their home, 70% insure their holiday and 18% their mobile phone, according to a survey carried out by Zurich.
Traditionally, income protection products were focused on people who were permanently prevented from working by illness or accident. Often the claim exclusions were quite severe, with payments only kicking in if the inability to work covered any type of work, not just the occupation of the employee or based on a series of capability tests which had to be assessed by a professional. Of course, this made the policies cheaper but less useful as only a small number of people will ever fall into these categories of semi-permanent disablement.
In addition, the benefits were primarily restricted to a regular pay-out for the duration of the claim enabling the disabled employee to meet their basic needs. Again worthy, but most people will never fall into the category of requiring these.
Yet, like Cinderella, income protection policies have undergone a magical transformation over the last few years. They are evolving into more of a service than a product and have a lot more flexibility built in. Many products now feature cover that extends to dependents of the individuals, mostly children but it can include adult dependents.
More importantly, many providers are branching out to include benefits that related to rehabilitation and focusing on getting the claimant back in the workforce as quickly as possible. These include everything from virtual GPs, health MOTs and Employee Assistance Programmes to mindfulness apps and stress resilience training. Often these benefits are provided for free, as they are of benefit to the claimant in getting them well and of benefit to the company in ending the claim and getting the claimant gainfully employed again – a true win-win situation.
The Office for National Statistics in the UK has said that as much as 13% of all sickness absences in the workplace can be attributed to some form of mental health issue – costing the UK economy up to £8 billion each year. And the Association of British Insurers have stated that mental health issues are the most common cause for claim on Income Protection Policies in the UK. So, fast-tracking the employees to counselling is of far greater importance to their overall life than just paying out the income proportion that is the stated benefit, as in general the earlier the medical intervention is, the sooner the employee recovers.
This view of income protection as being more than a monetary event has transformed the product. Providing services that help the individual recover and regain a sense of self-worth is extremely valuable. Income protection products are expanding to offer more practical support such as carer cover for when a dependent relative is ill or access to physiotherapy or legal helplines, where a claim may be involved. All of these helps to reduce the stress of the event and encourage people on the road to recovery.
Income protection products are playing a bigger role in providing the security that the public are looking for. And insurers who want to promote this will need flexible systems that can be configured to supply the more sophisticated benefits than the standard pay-outs of the more traditional policies. If insurers give advisers the tools, the potential market for increasing these flexible plans is significant.
People want the peace of mind that comes with having protection for their income when things go wrong and outside help to get to a better place. In this case, insurers can play the fairy godmother role, with income protection products as the magic wand that can give them the opportunity for a better life.
By: Tom Murray