The FCA is looking for good consumer outcomes across the board. So, asks ATEB Consulting’s Lisa Cross, how many advice firms consistently assess whether their clients are prepared if poor health strikes?
Thomas Fuller, the 17th Century author and historian said that: “Health is not valued till sickness comes.”
It is probably true that most people in good health perhaps take it for granted, but according to the Office of National Statistics, the number of working age people who can’t work because of long-term sickness has been increasing since before the Coronavirus pandemic. It rose from 2 million at the start of 2019 to 2.5 million as of January 2023.
So why is this?
Well, commentary in various media suggests it’s a combination of people struggling with long Covid and access to healthcare not being what it once was and in the latter case there is perhaps some evidence to support this. Have you tried to get an appointment to see your GP recently?
It seems that some people are trying to partly address the issue by taking out private health care, with the uptake doubling since 2019, however income protection still seems to be out of favour for reasons unknown. This is surprising, considering that the cost of mortgages, utilities and food has soared and many households are no longer be able to meet basic expenditure on just one income.
So, what happens when illness does arise?
For employees there’s Statutory Sick Pay of course, but £109.40 per week for up to 28 weeks won’t really cut it for most households (and the self employed are even less well catered for), so to lose an income would have significant financial implications for many families. Many employers provide some form of sick pay arrangements, but this rarely lasts beyond 12 months and in most cases less than this, so why is income protection not more of a consideration?
Depending upon the product provider it could replace up to circa 65% of gross income if the insured is unable to work due to illness or an accident (although most apply a limit of 55%), which may just keep the wolf from the door (provided the illness is not due to a pre-existing condition of course) and the income would continue until the individual was able to return to work, or in a worse case scenario, until the expiry of the policy/retirement age.
With Consumer Duty now live (it won’t have escaped our readers!) and the regulator expecting firms to be able to evidence that they provide good consumer outcomes, how many advisers are covering protection matters at review meetings?
It’s all well and good looking at portfolio valuations and cashflow forecasts, but if your client falls ill and their income is impacted how will this affect their plans?
Advisers indignantly state that they are financial planners these days, so are your clients prepared if poor health strikes?
Yes, protection can be time consuming, it rarely generates any recurring income and there’s all the underwriting to deal with, but it forms the cornerstone for many financial plans yet it is so often overlooked.
Our view and recommended action
Time and again we see advice files where the adviser has focused on the client’s investments or retirement planning, but protection fails to enter the equation. How many plans would be compromised as a result of long term illness or disability? Protection is generally still ‘sold’, primarily because it involves expenditure that most clients are reluctant to commit to, but if their income did cease how would they manage? And what would happen to that carefully crafted investment portfolio if they did fall ill? If their income stopped and you’d negated to discuss income protection with them previously, how easy would it be to defend a complaint? Evidencing Good Consumer Outcomes is about doing the right thing, not just price and value.
Protection is something that really should be on the agenda within discussions with clients. If there are shortfalls, it is incumbent upon the adviser to highlight these.
[Main image: jason-blackeye-EU6r4JmhiPc-unsplash]
