Experts' vote of confidence for income protection

Article date: 7 September 2000

More than two thirds of independent financial advisers havetheir own income protection cover, and almost 90% of them sell theproduct, according to new research from Norwich UnionHealthcare.

But despite this vote of confidence from the experts, it isstill taking much longer for the message to reach a wider audience– currently only 11% of the working population have any formof long term income protection*.

And according to independent financial advisers, the main reasonfor this is that people believe income protection is too expensivefor them, especially if they are already paying out for life coverand pensions.

Nick Homer of Norwich Union Healthcare said: “The factthat so many independent financial advisers take out incomeprotection for themselves is recognition that it should be seen asan essential rather than a nice-to-have.”

Income protection could mean the difference between keeping andlosing their home for anyone who becomes unable to work throughillness or injury.

And it is possible to reduce the cost in a number of ways.Income protection policies offer people a choice of deferredperiods – that is, a period of time which will elapse betweenthe claim being made and the benefit payments beginning. They may,for example, receive sick pay from their employer for three months,and therefore choose a deferred period of 13 weeks. The longer thedeferred period, the lower the premium.

One option to reduce costs is to opt for a policy with a splitdeferred period, which allows people to cover essential outgoingsin the short term, and then to increase cover to support theirstandard of living if the incapacity proves to be more longterm.

For example, a 30-year-old non-smoking male office manageraccepted on a standard risks basis for Norwich UnionHealthcare’s SafeGuard income protection cover to the age of60 would pay £48.30 per month for a monthly benefit of £1500following a 4 week deferred period.

However, if he opted for £750 monthly benefit after the initial4 week deferred period, to continue for 13 weeks, rising to £1500per month after that if he was still claiming, the premium would bereduced to £36.38, saving £136 a year. (The initial premium rate isguaranteed for five years.)

"Income protection can obviously protect peoples’ income,but it is equally useful for protecting a specific financialcommitment such as a mortgage," said Nick Homer.

"Taking this type of approach not only reduces the cost, but canalso help people to understand more clearly the benefits of havingincome protection."

* ABI statistics 1998

For more information on SafeGuard income protection, readers cancall 0800 400 123.

Notes to Editors:

  • 150 IFAs across the UK took part in the survey, carried out byQRS Market Research Ltd on behalf on Norwich Union healthcare
  • Norwich Union Healthcare was founded in 1990 as the healthcarearm of Norwich Union and now provides a range of income protectionand private medical insurance products to around 600,000customers. It is one of the largest providers of income protectionand private medical insurance in the UK.
  • CGU and Norwich Union merged on 30 May 2000 to create CGNU plc- the world’s 6th largest insurer, the UK's largestinsurance group and one of the top-five life insurers in Europewith substantial positions in other markets around the world.

CGNU's principal business activities are long-term savings,general insurance and asset management with worldwide premiumincome and retail investment sales of £26 billion and assets undermanagement of more than £200 billion.

From October, the combined life and pensions, general insuranceand retail fund businesses in the UK will operate under the NorwichUnion brand, while the institutional business will operate underthe Morley Fund Management brand.

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