Income Protection – A Consumer’s View

Theresa Fritz brings her consumer experience to bear on the puzzle of IP sales...or the lack of them.
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Theresa Fritz brings her consumer experience to bear on the puzzle of IP sales…or the lack of them.

When I was asked to write a few words about the consumer view of income protection, I must admit to being a bit lost for words. (A rare occurrence some would say).

However, the reason I’m struggling is that I don’t think consumers have a view on income protection (at least those outside the financial services industry don’t).

So I took a very small and unscientific straw poll of twenty people I know and asked them if they had income protection.

Most looked at me blankly, some asked if that was the same as PPI and a couple said they had something called critical illness with their life insurance – so was that o.k.?

When I explained what income protection was, most thought it was a good idea but said they wouldn’t be able to afford it as it must be very expensive. When I told them that they could probably buy what they needed for less than £50 a month (most were in their twenties and early thirties), this statement was treated with much scepticism. Why, if it’s that good and that cheap, had no-one tried to sell it to them?

Why indeed. I have asked myself that question many times over the years.

I am very tired of hearing the protection industry’s reasons for the fact income protection isn’t sold/bought. Here are some examples:

  • buying protection insurance isn’t as exciting or as emotive as buying an iPad or HD television
  • consumers have their head in the sand
  • consumers don’t like thinking about the depressing subject of being ill or disabled
  • consumers are lethargic, disengaged and just plain obstinate when it comes to trying to get them to buy this product.

And, of course, the favourite excuse the industry makes when things aren’t going its way:

  • consumers don’t take responsibility

Take your pick – all of these things and more have been said many times. The bottom line is, that the industry blames its potential customers for the fact that they won’t buy this product from them. How bizarre is that?

Yes, consumers are disengaged when it comes to buying income protection, but it’s not because they are more interested in buying a new iPad than protecting their families. If you really think that then that’s not saying much for the human race.

It’s because the industry makes it so difficult for them.

Buying anything that you don’t understand is a tricky business – even more so when it’s not something you particularly want, but know that you should have. It’s a bit like going to the gym or doing whatever exercise you reluctantly do each week. For most of us it’s not something we particularly like doing, but something that we know we should do for our health and wellbeing. Buying any type of insurance (not just income protection) is like that. It’s a necessary evil – an annual chore that we have to do so let’s get it over and done with as quickly as possible. But buy it we do.

Protection insurance of course doesn’t have the advantage of having to be renewed each year, so there are less opportunities to sell it, but even when those opportunities present themselves, the industry has failed to grasp the nettle and get on with it.

The classic example of this is those millions of people taking out a mortgage for the first time each year.

Many of those new home owners will come away with a nice shiny new mortgage and also a life insurance policy bundled with critical illness. Some would say that at least they have some protection, and some protection is better than none. But surely the sensible thing would have been to sell them income protection at this stage, possibly with life insurance, but definitely income protection. I’m afraid I have never understood the logic for selling critical illness to young first time buyers when the chances of them claiming on the policy in the first few years are virtually nil. But perhaps that is very naïve of me – the financial services industry does like selling products that it doesn’t have to pay out on doesn’t it?

But actually, I don’t think it’s a deliberate rip-off in this case. I think it’s pure laziness. I think life insurance plus CI is a quick and easy sale, whereas income protection takes a bit more time and a bit more research to make sure the policy fits with the clients’ needs.

Why haven’t the big IP providers been talking to mortgage brokers over the years and educating them in how to sell income protection? Why haven’t they made their processes easier for brokers to deal with, or their underwriting more streamlined or simpler (as they have with life insurance and CI)? Because it costs money, and time and resource – that’s why.

The problem is that most of those new homeowners won’t be able to afford a critical illness policy and an income protection policy, so by selling them the wrong cover you are kicking out the possibility of them buying the right cover for many years to come.

I truly believe that if consumers were told about income protection at a time when they really need it (first job, first home, first baby), and understood what it did and when it paid out, they would be prepared to answer a few more questions and to find out a bit more information from their employers in order to get an insurance policy that might actually pay out when they need it. But if you don’t try you will never know, and apart from a few dedicated specialists the industry hasn’t really tried to sell IP to the mass market.

There will always be some people who don’t believe in insurance and will not take it out. And there will be others who simply cannot afford it, no matter how cheap you make it. But these people are the minority.

If consumers were told about income protection instead of critical illness at crucial trigger points in their lives and provided with products that are simple to understand, simple to take out and pay out when they are needed– I think you would find that IP sales would take a dramatic turn for the better.

The Sergeant Review was a breath of fresh air. It shone a light into the protection and savings industry and challenged it to change its ways and start providing products that consumers needed.

But we shied away from coming up with a simple income protection product. I hope this is only whilst the simpler ‘simple’ product range is launched and that we come back to this in the not too distant future. Because out of all of the simple products talked about, income protection is the one that is most desperately needed.

But whether a simple IP product is developed or not, what is definitely needed is a fresh look at how income protection is sold. We could start by calling it income insurance (as suggested by Carol herself). This would mean more to consumers – they are used to car insurance, house insurance, travel insurance. Why make things more difficult than they need to be?

The industry has been talking about the fact that income protection is the ‘must have’ financial product for working people in the UK for many many years. Perhaps now might be a good time to start sharing this secret with the people you want to buy it.

Teresa Fritz

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Teresa is an independent consumer finance consultant specialising in the promotion of financial information, guidance and advice to consumers. Previously, she was head of Content and Product Development at MoneyVista.com, a financial website which helps consumers manage and take control of their finances. Before joining MoneyVista Teresa was a Principal Researcher at the consumer organisation Which?, where she worked for 15 years researching and writing consumer reports on all areas of personal finance.

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