Why your ability to earn an income is your greatest asset and how can you insure it?
Income protection benefits are uniquely packaged as one of the few risk benefits that aim to insure customers against any unforeseen circumstances that impact their ability to work and earn an income.
While benefits such as life cover, disability and critical illness provide a lump sum payout after suffering a critical event, payments under these insurance benefits are generally not directly linked to the actual cost associated with suffering the event.
“Income protection on the other hand generally covers an ability to earn an income, through monthly payments, in the event of not being able to work, placing a customer in the same financial position as they were while working”, says Henk Meintjes, Head of Risk Product Development at Liberty.
Income protection benefits are also unique to the extent that they have seen constant innovation over the past few years.
First generation income protection benefits are aimed at simply providing a portion of an individual’s monthly salary in the event of them being occupationally disabled. Benefits improved very quickly over time with second and subsequent generation benefits providing increases in the sums insured that could be covered (up to 100% of monthly income), adding additional claims criteria such as critical illness, impairments and fractures – amongst many others – and even increasing the maximum term of the benefit through revised retirement ages and the likes.
The latest generation of benefits look to include holistic income protection cover against anything that could potentially pose a threat to earning an income, including retrenchment, maternity and child illness.
“Despite all improvements over time, income protection benefits remain completely undersold. Various theories exist as to why this is the case, including the assumption that customers simply do not fully understand these benefits and the importance of insuring one’s income,” adds Meintjes.
The lack of product knowledge by customers particularly concerning from a customer centricity and Treating Customers Fairly (TCF) perspective. While every effort has been made to include additional benefits which truly meet observed customer needs over the years, very little seems to have been done to compare the pros and cons of lump sum and income benefits directly to customers.
The end result is that most customers still do not trust income protection benefits fully, preferring the (false) security of a larger lump sum payment instead. Customers also seem to believe that employer sponsored schemes provide sufficient cover, implying there is no additional need for income protection in a personal capacity. However, the reality is very different – very few employer schemes offer income protection cover. “Only by constantly putting appropriate advice in front of customers and showing them how these benefits could insure them, will we be able to facilitate a shift towards more comprehensive protection”, concludes Meintjes.