Why protection should be part of all financial planning
Planning for 20 years ahead could be folly if the client doesn’t plan for tomorrow as well, says Kevin Carr chief executive of Protection Review and MD of Carr Consulting & Communications
Despite economic events around the globe, protection sales have been fairly flat over the last five years. Roughly speaking about a million people a year buy life cover, while half a million buy some form of critical illness cover. Disappointingly, just over 100,000 buy income protection, which is probably the best product of the lot.
While a number of insurers have reported lower sales in the first half of 2013, this was largely expected following a number of market changes, including G-day when all insurance products became gender neutral in December. The fall in sales isn’t purely related to higher prices, although a linked trend that has diminished across the market is switching around to save money, or re-broking as some might call it. Or even churning. These sales have fallen because you can only switch around when prices are falling, not when they rise as we saw earlier in the year.
The basic needs for protection insurance are obvious – mortgage, marriage, children, change of career, inheritance tax and so on. But with changing times come changing needs. I’ve often heard advisers who specialise in protection say that it is more important than any asset allocation model. But in the age of wrap, drawdown and beyond, planning for 20 years ahead might be folly if clients don’t plan for tomorrow as well. It is all very well having an investment plan on course to meet the client’s magic number in the future but if that client has a nasty disagreement with a bus somewhere along the way the investment planning could fall short.
Just about all insurers are publishing their claims data on a regular basis with the averages for life, critical illness and income protection now in excess of 90% while new types of cover and modern underwriting tools have helped make the process much easier to manage. Most of all, most people need some financial protection.
And there are a range of useful facts, stats and sales tips to help. We regularly provide independent protection training for advisers and one of the areas is to discuss how other advisers sell protection. One of the most popular ideas revolves around using the employee’s handbook, most of which are accessible online. Get hold of a copy and translate it into a nice simple one pager showing all the benefits the employer offers – and all the things they don’t. Not only is this an obvious and excellent sales aid but it is also a very helpful service for the client, who may well refer their colleagues.
As for the press, it is a myth that only negative stories are covered. For sure, there are declined claim stories in the press and on TV, which stay long in the memory. However, the majority of coverage about the protection industry is often balanced and positive. Most newspapers cover the protection industry perhaps once a month and these stories often feature paid claims, paid claim statistics and generally good advice about what readers should and shouldn’t do. In addition, there are always stories about celebrities who have suffered from a serious illness, which in the current financial climate are often next to pages about how benefits from the Government are falling and how the State won’t be there to look after us in the future.
So it might be time to see protection a bit differently. With protection sales currently ring-fenced from the RDR, meaning that commission, quite rightly from a consumer view, is still in place, adviser firms can benefit in several ways, including a new income stream to help manage the transition to fees – while more importantly helping the client and their family to secure a better future.
For information on Protection Review http://protectionreview.co.uk