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Vicky Churcher, co-chair, Income Protection Task Force (IPTF), kicks off this content series on who buys Income Protection (IP), by examining the differences in IP products purchased, according to age groups.

IPTF members have expressed a keen interest in gaining deeper insights into both existing and potential IP customers, understanding who they are and their expectations regarding proposition features and customer service. This understanding can inform market strategies, refine product offerings, enhance customer service and, ultimately, broaden the reach of protection coverage for individuals facing unforeseen circumstances.

In collaboration with Iress, we analysed over 23,000 customer applications from 2023. This comprehensive examination enabled us to construct an updated profile of the IP customer today. Comparing this profile with that of five years ago revealed shifts in needs and emerging trends. This comparison prompts an evaluation of whether product and market adjustments have adequately kept pace with the evolving demands of Income Protection customers.

Starting this month (May 2024), in collaboration with Iress and COVER, we will share and examine each area of this invaluable customer data insight. Through collaborative discussions with members and advisers, we aim to decipher the implications of these findings and explore potential adaptations. Our focus will span across three key IP product areas: full term, short term and accident-only, we will cover 10 data areas.

The first area we will examine is the average age of a customer and to what age they want their cover to last. We will understand what the volumes of applications are from Gen Z and Millennials, and how these data points differ by IP product area.

Does the IP policy bought differ by age group?

The data presents valuable insights into the dynamics surrounding the purchase of individual IP and its relevance across different age groups, particularly in the context of the housing market and cost of living challenges.

Firstly, despite the national average age for first-time home purchases currently standing at 34, IP is not solely a product for homeowners. With a significant decline in first-time buyer numbers and younger generations, such as Gen Z and Millennials, facing obstacles in entering the housing market (often referred to as “Generation Rent”), there’s a notable shift in the factors driving the increase in IP sales, especially among younger demographics.

The statistics reveal that a substantial portion of IP applications, 72% to be exact, originate from individuals aged 45 or younger, with the age range of 31-40 emerging as the most likely group to purchase IP. This trend challenges the assumption that IP is predominantly sought after by older individuals.

Delving deeper into the data, it’s evident that the type of IP policy purchased varies across age groups. While individuals aged 31-35 are more inclined towards full-term and short-term IP policies, the preference shifts towards accident only IP among older age brackets, particularly in the 51-55 range.

Analysing the changing landscape over the years, there’s a notable increase in the average age of IP buyers, rising by two years since 2017. This shift supports the evolving perceptions and priorities regarding income security and protection, probably influenced by changing economic conditions and societal trends.

In summary, this data highlights the importance of IP as a financial safeguard, not limited to homeowners but increasingly relevant across diverse age groups, which reflect the changes in our society.

Market Comment

In challenging industry perspectives, we reach out to advisers and providers to understand what this data might mean for the value chain.

David Mead, director, Future Proof, said: “Unsurprisingly, most income protection policies are bought by the under 45s.

“The risk of having to take time off work due to illness increases as we get older, therefore the need for protection increases. I wonder if the relatively small proportion of IP policies purchased by the over 45s is not simply down to cost, it could be to do with the way it’s positioned by advisers (it’s going to be expensive, so my client probably won’t want it, or be able to afford it)?

“With so many ways to be able to tailor the cover and the cost, it’s still an important conversation if a need has been identified.”

Alan Waddington, distribution director, Cirencester Friendly, said: “This interesting data highlights the importance of advisers understanding their audience and tailoring their advice accordingly. What’s right for a 35-year-old may not be right for a 20-year-old or indeed a 50-year-old. Whilst cost is clearly a factor when quoting for clients over the age of 45, there can also be questions around how long they will need the benefit. Why pay for long term cover when there could be an option to retire early and utilise pensions?

“There is clearly a demand for accident only policies for those clients who may not be able to take out fully underwritten IP, especially for applicants over 45, but we should take care to ensure that clients with medical history disclose and are given the full facts so that they know what they can and can’t claim for and that underwritten IP has at least been considered to cover illness and non-accident related conditions.

“It is not entirely surprising that the average age of people buying IP has gone up when you consider that first time buyers are that much older, but that once again raises the question about when should people protect their income? Is it only when they have debts or should we be finding ways to encourage Gen Zs to buy earlier, when it’s potentially cheaper?”