Jamie Page
|Head of Protection Distribution
In times of economic uncertainty, there is arguably no better time to protect ourselves against the unforeseen impact of illness or injury on our ability to earn a living. Yet, whilst overall sales of income protection insurance increased in 20221, they have not reached the same heights as other forms of insurance, especially considering the current increase in demand for health insurance.
Previous research by The Exeter highlighted a greater awareness of our financial fragility, with 43 percent of the UK’s working population concerned about a loss of earnings due to injury or illness2.
So, despite these concerns, why are we not seeing a similar demand for income protection as we are for health insurance?
A matter of cost?
Whilst we might hope that individuals will turn to insurance products to provide a safety net during times of financial uncertainty, the reality is that for many, cutting back on spending becomes the priority.
However, the current demand for health insurance goes against this thinking; what’s more the average cost of a health insurance policy is higher than products such as income protection or life cover. The current demand for private health insurance highlights that where consumers see a need, and understand the value of products, cost becomes less of a barrier to purchase.
With income protection and health insurance policies often including flexible options to control premiums, and products available to meet a wide range of consumers, affordability is likely not the root cause driving demand for health insurance. Could it therefore be that consumers simply don’t currently see a need to protect their income from illness or injury?
Headlines help
For many people, the NHS plays an essential role in their healthcare, but it’s not news that the health service is currently struggling to meet demand. With issues around public healthcare often in the headlines, the incentive for consumers to switch to private alternatives and take out health insurance is easy to see. However, it may also be easier for consumers to see the link between being ill and needing treatment than being ill and unable to work for a prolonged period.
Following the pandemic, the question of health and recovery is still high in the public consciousness. However, despite the Government’s furlough support during lockdown, the awareness that long-term illness can lead to a substantial loss of income isn’t front of mind. And this perhaps goes some way to explaining why there hasn’t been a significant increase in income protection uptake since the pandemic.
The income protection challenge
When it comes to health insurance, the reliance on the NHS is ingrained in UK workers from an early age. The need to protect finances is something that often starts later in adult life.
Our research also found that only 17 per cent of UK workers have an income protection policy2, yet the need for insurance is clear. Recent figures estimate that a record high of 186 million working days were lost because of sickness or injury in 20223.
Initiatives such as Income Protection Awareness Week and industry support of the Income Protection Task Force have been instrumental in raising awareness of the benefits of income protection, but there's much more to be done.
We must consider how we can further increase consumer reach when it comes to income protection to raise awareness and ultimately increase the number of people protected.
With NHS waiting lists continuing to rise and high inflation impacting personal finances, the appeal of both health and income protection insurance should be high - it doesn’t need to be a one or the other decision. A client asking their adviser about health insurance may also benefit from income protection, and vice versa. They just might not yet know it.
The wider value of income protection
Nobody can know how long an unexpected illness or injury will last, which is why the monthly benefit from income protection is crucial to supporting financial wellbeing.
Explaining how the cover could shield savings from immediate bills will attract would-be homeowners, renters and the 1.4 million homeowners due to remortgage their properties in 2023, given the rise in mortgage rates4. New families and those new to employment are also often vulnerable to a sudden loss of income.
Another important feature of income protection insurance is the breadth of illness covered under policies. From colds and broken bones to back injuries and mental health conditions, these are all illnesses that could lead to a claim being paid if they prevent someone from working – it’s not just major illnesses such as cancer or a heart attack that can have an impact on someone’s ability to earn (although they can also be covered!).
Let’s take mental health as an example. A recent survey from the Mental Health Foundation found that one in three (32%) of those surveyed were anxious about being able to pay their bills5. In 2022 alone, 17 million working days were lost due to workers calling in sick as a result of mental health conditions such as depression or anxiety6. Should a client purchase a critical illness product rather than income protection, for example, they would likely be unable to claim. Crucially, with income protection, when a policyholder returns to work following a claim, the policy stays in place so, should they need to claim again in the future, they can.
Addressing the income protection imbalance
When it comes to insurance, consumers are best served by a holistic approach to health and financial planning advice, and income protection is a valuable part of this. Where people clearly understand the need for a product, and it's easily accessible, any concerns such as affordability, can be overcome.
To cover more people from the impact of illness or injury, we must take every opportunity presented to us to address the income protection imbalance. Only by putting the need for income protection front of mind for consumers, in the same way that the need for health insurance is currently, will we begin to make a notable difference.
With this in mind, I firmly believe that we each have a key part to play in widening the income protection audience.
All it takes is a conversation.
Sources:
1 – Swiss Re Term and Health Watch 2022
2 – The Exeter, Health and Financial Fears Research 2022
3 – www.ons.gov.uk
4 - www.theguardian.com
5 - www.mentalhealth.org.uk
6 - www.hse.gov.uk
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This article was originally published in Mortgage Solutions on 6 September 2023.