We’re only two years into the 2020s and already this decade is proving to be eventful and memorable.
So far, we have lived through a global pandemic, witnessed the storming of the US Capitol, and are now seeing war in Europe. Clearly this is a worrying time, full of uncertainty and challenges. One thing for sure is that the pandemic has made us acutely aware of our physical vulnerability and increasingly, we are now becoming much more aware of our financial vulnerability, particularly due to the cost-of-living increases.
It’s fair to say that we all need some peace of mind at this troubling time, and it’s natural to seek reassurance and security. For many this is where protection comes in. Reinforcing (buying more) and strengthening our existing protection cover provides us a much-needed opportunity to control at least one aspect of our lives, especially when so much is beyond our control.
There are several factors that suggest that the time for protection advice, and in particular advice on ‘living benefits’ has never been more opportune than now. What follows are a few of the reasons I think living benefits (such as Income Protection, Cancer Cover, Serious Illness incorporating children’s cover, and additional rider benefits like hospital cash, surgical cash and personal accident) will, and should, be an increasing area of focus for us in the insurance industry.
Covid 19 - Awareness of Vulnerability and Legacy
The Covid pandemic has changed the world as we knew it. We were confined to our homes, we educated our children from home, we got our entertainment through Netflix, all forms of night-time external socialising ended, and for many, home became our place of work. The virus made many of us very sick and left some with serious legacy health issues and sadly, it took the lives of many loved ones.
Particularly in the early days of the pandemic, it was shocking to hear stories of healthy fit individuals losing their lives due to the virus. There were daily updates on hospitalisations and Covid-related mortality, and as an industry, we saw an immediate increased awareness of and demand for life cover. Thankfully, with the advent of vaccinations and development of treatments, mortality has reduced. However, we are still living with Covid. Now the media is reporting on complications arising post-Covid, often termed “long Covid”, ranging from chronic fatigue, system auto immune complications, to heart and lung disorders.
More than ever, people are starting to understand the value of products that provide cover in the event of severe illness, protracted time spent in hospital, or time off work. This understanding of the potential lasting implications on our ability to work (earn income) due to sickness is a welcome starting point in our discussion with clients. For many, the affordability and practicalities of the various protection options are welcome and reassuring after such a fraught time.
Living Longer – Longer Living with Disease and Illness
A child born today in Ireland has a predicted life expectancy of 83.1 However, illnesses other than Covid haven’t gone away.In fact, year on year, we see greater awareness and diagnosis of long-term illnesses which we know can affect our income and our savings. One of the most life altering diagnosis is cancer. Treatments such as immunotherapy, stem cell, and good lifestyle management are crucial for managing cancer. Earlier diagnosis through genetic-led personalised medicine or liquid biopsy are also providing mankind with many reasons to be optimistic about longevity.
Living longer doesn’t mean we won’t get sick. In fact, the greatest risk factor for most illness is age. When we get sick, we need time to heal and that often comes with a cost - just consider the impact on your income (if not supported by your employer). There is also the extra cost such as childcare, heating, transport, not to mention various medical treatments. A serious illness could also mean that a person might simply not have the same ability to work and may need to change their work-life balance. The combination of income protection to deal with the time off work while healing in addition to an element of serious illness cover (perhaps associated with a mortgage) affords the client rounded protection and the luxury of choice should a serious illness happen.
One clear takeaway I have from my career is that nobody is guaranteed a life of good health. Whilst we can mitigate our risks through healthy living and good practices, we cannot 100% prevent poor health or accidents and therefore some level of living benefits cover is essential.
Changing Demographics and the Growing Need for Cover
If we are going to live longer as predicted, it stands to reason those demographics will change - and they are changing. Today, we are doing things later than previous generations and have different demands.
| What is the age for ... in Ireland? | |
| Having a first baby | 32 |
| Getting your first mortgage | 34 |
| Getting married | 34 |
| Divorce | 53 |
| Retiring | 66 |
| Exit Lounge | 82+ |
If we are going to live longer, it stands to reason we will have to work longer to fund for this extended life. This provides the market with an incredible and pressing opportunity for advice on living benefits.
Despite the level of growth in protection during the pandemic, there is no room for complacency, in that there is an ever-increasing need for protection. The FCA's ‘Financial Lives 2020’ survey revealed there is still a significant protection gap in the UK with 53% of people surveyed not having any protection products.
While the UK might be different to here in Ireland, I certainly think that changing demographics such as later mortgage purchase means that the primary triggers for life cover are now happening much later in a client’s life. This can result in real vulnerability from sickness or accident impacting on basic financial wellbeing such as paying rent or a mortgage. From a personal perspective, I would advocate income protection as the basic protection product for anyone that has an income and needs that income to pay bills (and doesn’t have adequate cover in work). This applies to all lives, be they young, single, partnered or parent. As a basic, the level of income protection should cover a client’s rent or mortgage repayments, often the biggest drain on the household. As times goes by, Guaranteed Insurability Options (GIOs) can be used to increase this cover on events such as birth of a child or marriage. This is particularly valuable to a client where their health has changed.
Take this Example of Paul’s 5-Year Future:
2022
Paul is 30 and has no children. He pays a high rent of €1,800pm but with his partner is saving for a deposit for a house. He has no health issues 1 Source: Independent.ie and earns €60,000pa. He takes out an income protection policy for an annual benefit of €24,000 to cover his annual rent. He believes he can manage with state benefit and his partner’s support. He has a deferred period of 13 weeks that matches what his employer would support.
2025
Paul has suffered numerous self-limiting sporting injuries due to his younger sporting life as a hurler, which his GP advises will result eventually in knee replacements. His salary has increased and he is now a father with additional outgoings, so he exercises the GIO option for 50% of the sum assured, increasing his cover to €36,000pa without any Musculo skeletal exclusions.
2027
Paul decides to get married and happily his salary has increased. He has again exercised a GIO on marriage and his total IP cover is now €48,000pa. Paul’s income and his family’s financial well-being is sufficiently covered should he develop cancer, heart attack, auto immune or have a serious accident while out cycling – his latest sport.
The Cost-of-Living Crisis
Those of us old enough to remember the last tightening of belts will remember the resilience of protection sales. It was said to me recently by a Financial Broker that protection is “the backbone of a person’s financial plan” – their essential purchase. Sales aren’t easy but in times of crisis and with dwindling savings, the real fear of being financially exposed should the earner, or indeed any member of the family, get seriously ill can provide the impetus for securing or increasing cover.
Affordability will be an issue for many, but the old adage that some cover is better than none certainly rings true. Opting for tax efficient income protection at a level best afforded is a good starting point and if you layer this with some additional basic cover such as cancer cover (cancer being by far the most claimed serious illness), most clients will be well protected. This is particularly true for women, where the risk of getting breast cancer is 1 in 83 and the average age of diagnosis in Ireland between age 50 to 64 (41%) is for breast cancer.4 Remember cancer cover is available to clients with diabetes, heart issues, neurological issues or high obesity and offers a good starting point for our customers.
Future Proofing our Reputations
We know that protection advice is an essential part of all financial plans. However, as the old saying goes, you can only bring a horse to water. Tragically, we hear of cases where the advice given is not taken up by a client before a serious illness unfolds. My sense is that there may be more focus on protection advice noting that the Central Bank has listed consumer protection asone of its strategic themes. It is outlined as follows:
“Ensuring the best interests of consumers and investors are protected is a fundamental part of the Central Bank’s Mission. Embedding a consumer-focused culture within firms is essential to ensuring they serve the interests and needs of consumers.”
To avoid any potential issues or misunderstandings, I find more and more Financial Brokers documenting their advice and ensuring the client consciously opts out.
Customer Concern
However, I think we all agree that the most pressing reason for recommending protection is that it’s the right thing to do. Protection cover is hugely beneficial, providing a financial buffer to individuals when they or their children get seriously ill, there is a serious accident preventing work, or worse, a premature death. The value of protection is the worry it removes should tragedy befall a customer.
Our customers are at the centre of all we do in the life industry. They are our clients and often friends or family. Annually, we pay millions to families and individuals suffering the most tragic of events. The trajectory of thousands of lives annually has been changed due to the advice given to them and their loved ones.
“A lot done but a lot left to do”
So, with the customer at the centre of our world we must consider that they are likely to live a longer life and therefore have a longer working life. We know age is a major risk factor in sickness and the longer we work the more we can expect to experience illness in our working life. Our customers may be experiencing increasing financial pressures and worries reducing their nest egg which might have been used as the financial buffer at time of tragedy. Just out of a pandemic, we are acutely aware of our vulnerability, so there are several reasons to prioritise protection. Time will tell if my predictions are correct, that the rise of the living benefits will herald a new era of protection.
1 Source: Independent.ie and earns €60,000pa.
2 Source: CSO / Irish Times / Financial Times / TradingEconomics.com
3 Source: Cancer.org
4 Source: Cancer.ie