IP: The better solution?

It’s safe to say that advisers are far more comfortable to offer critical illness cover than income protection. Critical illness outsells income protection on a ratio of over 3:1. But why?

Advisers use the solution of critical illness to either pay off a mortgage, or to provide the family with a lump sum as the insured will be off work. However, is this the best solution?

If we take the 1^st scenario, the question is whether a client would actually use that money to pay off the mortgage? If they did, where’s the money coming from to pay bills, to buy food, and to live off? They are more likely to use the pay-out for living expenses. If we take the 2nd scenario, what are they using that lump sum for? You can bet again its living expenses.

Presumably you will want to give the client the best possible outcome, otherwise you wouldn’t be advising in the first place. So given the choice between a policy with a specific lump sum pay out, no matter how long you’re without an income, or a policy that would supply an income until you return to work, that was designed to cover living expenses (the very thing the client is wanting to cover), which would you choose?

If you would still pick critical illness, let’s look at claims. Given the choice, between a policy with a specific list of illness, with a specific list of accompanying definitions, or a policy you can claim on any illness, you just have to not be able to work to claim, which would you pick? It really is a no brainer.

Most claims on critical illness would mean a client had time off work anyway, so the client would not be missing out if they opted for an income protection policy instead. In fact they are gaining a higher propensity  to claim, as income protection covers the all-important musculoskeletal and mental health issues, among others, which critical illness does not.

Don’t get me wrong, it would be great to give a client a £50,000 pay out for a small heart attack, where they were off work for 4 months. However, the likelihood of that happening is substantially less than them being off work with a bad back for 4 months, and if you haven’t even spoke about income protection, have you really looked after the client?

I believe advisers don’t talk about income protection due to the marriage between life cover and critical illness – they go hand in hand in the minds of the advisers, and lump sums are familiar. However, we have to change our thinking. Let me put this to you – would you rather sell a client a £50,000 critical illness plan or give the client a £2,000 income protection plan? The average income protection claim is as much as 7 years, so when you work it out, the real question is do you want the client to be able to claim £50,000, or £168,000?

I challenge you to find a reason to offer critical illness over income protection; income protection is far more claimable, offers better coverage, and gives extra protection for the solution you are trying to solve in almost every scenario.

Samuel Marriott

References:

Aviva – 7yrs 5 months

https://www.aviva.co.uk/adviser/documents/view/pt151147-2020_individual_protection_claims_report.pdf

Swiss Re Term & Health Watch 2022