Income protection is one of the least known and utilised sectors of the protection market.
This cover provides a regular income if the policyholder is unable to work due to illness or injury.
Research has shown that the majority of people believe that the state will look after them if they become ill but with little or no idea to what extent.
A survey by Legal & General showed that 65 per cent of people with mortgages believe that their employer will provide for them.
The worrying reality is that for most people, state sickness benefits would be unlikely to cover the outgoings of a ‘normal’ family and most employers will provide salary cover for six or 12 months in the event of long-term absence. The situation is far worse for the self-employed.
Some nine years ago the Income Protection Task Force (IPTF) was established with the objective of raising public and industry awareness of these issues. To date, it has focussed on educating distributors (mainly financial advisers), but is about to launch a new initiative labelled Seven Families.
The scheme is being designed in partnership with Disability Rights UK and will provide tax-free financial support for a year to seven families whose breadwinner is unable to work as a result of illness or injury.
The breadwinners will be people who do not have an income protection policy but who could have held one before they became ill.
They will have been earning £30 to £35,000 before becoming disabled.
Each family will receive up to £20,000 over the year, together with significant rehabilitation support to try and help the subjects to get back into work as quickly as possible. This mirrors the support provided by many income protection policies which provide practical and financial benefits.
At the launch of the Seven Families, IPTF chairman Peter le Beau said; “This project is not in any way to criticise the Government’s approach to welfare or to make a grand political statement, it is just intended to show a situation people need to know about and that hardly anyone does.”
As well as raising the awareness of individuals, Seven Families is also intended to identify the benefits to employers of providing group income protection cover to their staff.
If an employer provides income protection cover and an employee is away from work with a long term illness, the employer can inform the rest of the staff that the individual is still being looked after and is still being paid. A powerful message to the workforce.
It is easy to be cynical about this project, seeing it as another method of advertising by the insurance industry. We much prefer to take a more generous view that if successful, it will mean that many more people will benefit from the support provided by income protection cover.
It remains to be seen whether Seven Families will have a significant effect on the income protection market but it is believed that it stands a better chance of success than earlier projects.
“Case studies are one of the most powerful ways to highlight the support a regular financial contribution can make to a family in need,” says Steve Casey, head of marketing at Ageas Protect, one of the sponsoring insurers,
“Income protection can at least take away some of the financial worry and leave people to concentrate on getting better.”
* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull. E-mail: firstname.lastname@example.org