“If I had my way I would write the word “insure” over every door of every cottage and upon the blotting book of every public man,
because I am convinced that, for sacrifices that are conceivably small, families can be secured against catastrophes which otherwise would smash them forever.”
Winston Churchill
With all the recent media attention on the Banks failings in wrongly advising customers on PPI insurance, it is no wonder that people will be put off by this type of policy, and if you couple this with the mass coverage that Claims Companies have given this subject, it compounds the misery people have suffered and the stigma associated with this product area.
Unsuitable Advice
We have also come across new clients who had been mis-sold PPI Insurance, even retired people who quite clearly had no need for such a policy, and this type of unsuitable advice can leave such a bad taste in people’s mouths, that it can sour the opinion of this type of policy for a long time.
A lot of the mis-selling was based around single premium policies or high monthly premiums, which were added to loan agreements, which was a very expensive way of providing cover, and a lot of profit and commissions were made by the selling of these policies alongside the loans. Lenders like Alliance & Leicester and HFC Bank have had huge fines. With very little transparency, people were often sold these policies on the back of “want the loan, take the cover”.
Confusion Reigns
Sadly an inevitable result of such poor and appalling advice is the confusion that remains over the various types of policies, and the danger is people will ignore providing themselves with any type of cover. Even well read financial DIY’ers would have just cause to be confused between PPI (Payment Protection Insurance), MPPI (Mortgage Payment Protection Insurance), ASU (Accident, Sickness & Unemployment cover), PHI (Permanent Health Insurance), IP (Income Protection) …….. all basically set up to do the same thing – pay an income when you are not working, and its important when looking at the areas of protection that you choose the right policy.
When correctly examined, there is a great need for a form of Income Protection for most people.
The PPI-Loan Protection policies associated with the Banks’ mis-selling scandal should not be confused with Mortgage Payment Protection Insurance type policies (MMPI) or Income Protection policies, which pay out a monthly benefit to help cover essential outgoings if you are unable to work due to accident, sickness, unemployment or have to leave work to become a full time carer.
The Worrying Facts
Based on a YouGov survey commissioned earlier this year, only 4% of people claimed to have Income Insurance. A stark statistic when you consider that based on HSBC’s recent research, as many as 29% of UK employees believe their jobs will not be entirely secure over the coming year.
The respondents to the survey estimate they would need £875 to cover their monthly outgoings. Given that 36% of the people are relying on Government benefits should they find themselves out of work, it is worrying that the weekly Jobseekers Allowance for over 25’s is just £67.50, which is not nearly enough to cover most people’s outgoings.
Industry Recognition
Thankfully the market and providers still recognise the need for quality and correctly priced products and on the 15 June, specialist General Insurance provider, Assurant Intermediary, were crowned Best MPPI Provider at the Moneyfacts Awards 2011. http://www.moneyfactsgroup.co.uk/awards/
Sales and Marketing Director Kevin Paterson commented: “We are delighted to win this prestigious award. The fact that we have been both judged against our peers in the industry and voted for by Intermediaries makes it all the more rewarding for the team here in York. There has been a lot of effort made over the past couple of years, not only to deliver an MPPI product that Intermediaries and their customers have confidence in, but to also create a service proposition that provides them with the support they need”.
The Moneyfacts Awards are presented based on rigorous product monitoring, carried out throughout the preceding year, as well as consulting the broker community for its feedback.
Sylvia Waycot, Publishing Director of Moneyfacts, said at the ceremony held last week: “By meeting the difficulties presented by another challenging year in the personal finance services industry, product providers have once again proven their worth. The winners and finalists at this year’s Moneyfacts Awards should be rightly proud of their achievements and have offered a range of products which are continuing to demonstrate a firm commitment to quality and choice, at a time when the sector’s success and growth has never been more important”.
Despite the bad press – right for a change – over the Banks and PPI, I believe that financial advisers need to educate clients over the different types of policies, the good, the bad and even the ugly, and continue to raise clients’ awareness of Income Insurance, and encourage them to take responsibility for their well being and plan ahead for the future.
The Way Forward
One of the big threats in our life to achieving our financial goals is the loss of our income, yet it is one of the factors outside of our control. Our income ensures financial security for us and our families for the rest of our lives, and how many people have sufficient emergency funds to help with the regular monthly outgoings if that income stops.
Income protection should be considered a cornerstone of all financial planning, yet sales of Term Assurance and Critical Illness outnumber Income Protection 30 to 1. These statistics are quite surprising when you consider the probability of claiming under these different types of protection cover, people are far more likely to be off work for 6 months or more (due to accident or illness) than suffer from a critical illness or die during their working life.
There is a common misconception from a lot of people that their employer, family or the State would provide if they were unable to work because of a serious illness. However, when you look at the facts, it is obvious that the majority of clients would suffer a shortfall between their monthly outgoings and that provided by the State or other sources.
It is the job of qualified and experienced Independent Financial Advisers (IFA’s) to explain the differences in cover types and recommend where appropriate, and we believe there is still a major need for the right type of cover, and think Winston’s quote is timeless and to the point.
