Income protection (IP) has historically not had the high profile and dedication of life and critical illness cover as it has traditionally lagged behind in terms of sales.
But increased wait times for NHS treatment, a seemingly never ending cost of living crisis, and changing consumer demographics such as people renting for longer and the rise of the gig economy, have fuelled demand among consumers to protect their income.
There are signs that the gender gap among these consumers is closing as the IP message seems to be hitting home – particularly among savvy younger people – for whom cover is often much cheaper.
And while it is clear advisers and customers alike would like more flexible propositions, it seems insurers are responding with short term options and reduced application times to ensure demand for this important cover is maintained over the longer term.
Poor relation
“Income protection has always been viewed as the poor relation to life and critical illness (CI) but a number of changes to products and new entrants means much more attention is now being paid to it,” Jennifer Gilchrist, protection expert at Royal London, tells Health & Protection.
“And of course, Consumer Duty means it is now much more central to advice conversations.
“So, from a solution that flew under the radar for too long, it’s now generating more new business, albeit from a lower volumes base than life or critical illness cover.”
Various factors driving demand
In terms of what’s generating this new business, Alan Waddington, distribution director at Cirencester Friendly, points to three elements that are having the biggest impact.
“Firstly, I do believe there is a greater awareness of the product and the benefits it offers, particularly among younger people,” Waddington says.
“Secondly, the macro climate, with a huge amount of instability around the world, has prompted people to think more about their insecurities and consider what steps they can take to protect themselves.
“And thirdly, with raising levels of long-term ill-health and growing NHS waiting lists, people are more aware of their own physical frailties and the need to protect their income if they can’t work through illness or injury.”
Cost of living
But a further factor is the ongoing cost of living crisis, says Tim Butler, proposition manager at Zurich Insurance.
“Budgets have become tighter, and the consequences of a lost income are consequently greater,” Butler says.
“The industry as a collective is rightly pushing income protection, which is leading to increased demand and sales of what is arguably the most important need to be protected.”
Gig economy
Vicky Churcher, vice chairwoman and executive director at the Income Protection Task Force (IPTF), tells Health & Protection the rise of the gig economy is also playing a key role.
“Demand for individual income protection has seen notable growth, especially in younger demographics, driven by a heightened awareness of financial vulnerability post-pandemic,” Churcher explains.
“This demand aligns with growing financial literacy, economic uncertainty, and the rise of the gig economy, pushing more people to consider their income security.
“We’ve seen a steady increase in IP applications. Q3 appears to be better than Q2, which was better than Q1.
“Overall, we are set to have a better year in 2024 than we did in 2023, which in itself was a record year.”
Gary Beyer, protection proposition director at LV=, agrees adding: “More flexible working hours and short-term contracts are driving demand for income protection products, with people aged 30-45 accounting for 60% of our sales.
“We have also seen a rise in health sector occupations taking out policies due to the features we offer in this industry.”
Gender parity
Positive news then, and there are also signs that the gender gap in terms of who actually buys IP is closing.
Victoria Francis, head of individual protection propositions at Aviva, says: “We are also seeing greater gender parity in the purchase of income protection, with more women opting to buy our cover than we’ve seen in previous years.
“This is an encouraging trend that’s repeated across the market, but there is still work to do in this area with an opportunity for proposition development to better meet needs of underserved groups.”
Adapting propositions
But it is not as if insurers are sitting on their hands when it comes to adapting propositions to capitalise on this market growth.
And this November, National Friendly chose to speed up its application process.
“Income protection has traditionally been one of the longest application processes,” the insurer told Health & Protection.
“But we’ve seen a number of changes this year with updating of non-medical limits, seeking alternative medical evidence to avoid the need for GP records, streamlined questions and reviewable exclusions in an effort to get clients onboard quicker.
“We believe this trend will continue. We also buck the trend of postponing applicants awaiting treatment for minor conditions, which helps to reduce the protection gap even further.”
Vitality is another provider that has adapted its offering as Justin Taurog, managing director at Vitality Life, points out.
“In the past year alone, we’ve extended the retirement age for a number of occupations, alongside introducing a number of shorter deferred periods for manual workers and extending own occupation for all our occupations,” Taurog explains.
“We have also recently introduced a number of services and support such as physiotherapy and mental health support, to help people get back to work as quickly as they can.
“And we have introduced enhanced guaranteed insurability options which enable members to increase their cover, extend their term, or change their deferred period for a variety of reasons – including becoming a homeowner, changing jobs, or having a child – without having to provide health information.”
Short term options
And the increased prevalence of short term IP options from providers is a further trend welcomed by David Hollingworth, associate director, communications at London & Country Mortgages.
“Offering short term income protection options for cover of one to five years helps to develop the range of options available,” Hollingworth says.
“That ultimately gives an adviser the opportunity to talk about and assess what is most important to the individual customer, young or old.
“It gives the chance to provide some flexibility in cost and keep costs down where that is a barrier, but still have some cover.”
Young people don’t know IP exists
Product improvements are meaningless, however, if consumers do not know what IP is, or that it even exists.
This is a key issue advisers need to overcome, according to Naomi Greatorex, owner of Heath Protection Solutions.
“Young people don’t know it exists,” Greatorex says.
“Lots of advice is given around mortgages but young people aren’t taking out mortgages.
“Therefore how are we having that conversation with young people and how are they expected to know that that protection exists?
“When I speak to young people, they don’t think it will happen to them and there is an education piece.”
Personalise the narrative
Joanna Streames, owner of Velvet Mortgage and Insure Services, maintains that advisers still struggle with tackling client objections.
“When dealing with this in my course for advisers I always recommend they personalise the narrative – demonstrating the tangible impact of income loss and breaking down coverage costs,” Streames said.
“Educating clients on partial benefits for short-term disabilities and tangible benefits which can help make life easier without the need for claiming, also give added value to the client.
“I think it’s super important for advisers to get to grips with these behind-the-core reasons for cover.
“People are looking for value in products and services more than ever today.”
Why choose between CI and IP?
A further issue for advisers is where they think they have to persuade their client into making a choice between CI and IP cover as Angela Davidson, head of protection at Mortgage Intelligence, points out.
“Personally, I have always believed that clients should have both where possible, and advisers should take care to show they complement each other,” Davidson continues.
“However, its human nature to see a large lump sum as more appealing and useful than a lower monthly pay out that just covers the bills.
“For instance £2,500 per month seems a far cry from a £100,000 lump sum, but some rudimentary maths can help clients to visualise the somewhat hidden value of income protection.
“If a client is shown the potential pay out of what a full term IP policy could be, they may see things differently.
“That £2,500 per month, if they were to become unable to work early on in the term of the policy, and never return – could potentially be worth nearer £900,000 over 25 years, way more than the £100,000 lump sum.
“This is a great way for advisers to demonstrate the value of long term income protection.”
Importance of case studies
So ultimately, case studies really come into their own when it comes to selling IP.
Scott Cadger, head of claims and underwriting strategy at Scottish Widows, says: “Case studies are a very powerful way of demonstrating the benefits of income protection.
“It’s important for us to bring these case studies to life, not only for the customer’s benefit, but also to show how advisers have been able to bring on board customers with pre-existing conditions such as mental health or musculoskeletal issues.
“Advisers and providers need to continue to publicise when they have made a difference to customers. Highlighting the essential nature of protection products is a joint responsibility.
“Closing the protection gap is crucial to improving financial resilience, and we must continue to engage with customers, including through social media, to educate them on the benefits of income protection.”
And as for the future prospects for individual IP into 2025, Hilary Banks, commercial director at Guardian, said: “During 2024 we’ve seen a consistent skew towards income protection sold as part of a menu, with more than half of our IP policies on-risk sold in this way.
“It will be interesting to see if this is a trend that will persist, and whether the demand for IP sold as part of menu will remain bigger than for IP sold as a standalone product in 2025.”