Data indicating that most homeowners with an income protection policy don’t know what the policy covers isn’t a surprise and is symptomatic of a confused customer base bamboozled by brochures from insurers giving the perception that all types of protection is covered.
This is according to advisers Health & Protection spoke to following LifeSearch’s release of data last week showing that six in 10 homeowners with an IP policy wrongly think it covers redundancy.
Broader challenge
According to Justin Harper, chief marketing officer at LifeSearch, the company’s data points to a broader challenge of how people understand and retain financial information over time.
“What our research highlights is a gap between what people are told at the point of purchase and what they remember, or assume, later on,” Harper tells Health & Protection.
“We see this in practice. We regularly receive enquiries from customers asking specifically about income protection for redundancy.
“In those cases, we’re clear that income protection is designed to support people if they’re unable to work due to illness or injury, and we signpost them to other sources of support for job loss.
“We also see this come through at the claims stage, where some customers misunderstand what their policy does and doesn’t cover. That’s not because they were given the wrong information, but because over time details are forgotten, or different types of support – state, employer and personal – get blurred.”
Causes of misunderstandings
In terms of what is causing these misunderstandings, Harper points to a myriad of reasons.
“Time, focus and memory are issues,” he continues. “Policies are often taken out at a key life moment and then not revisited, so memory and details get lost in/after the excitement.”
Product complexity
Although Harper adds product complexity is also a factor.
“Income protection has more moving parts to it than something like life cover,” he continues.
“So it is more difficult to remember. Plus people don’t differentiate between types of insurance, and I believe we suffer the same blurring when it comes to the different types of income support – from the state, SSP [statutory sick pay], employer sick pay and personal cover, which can lead to confusion about what each one actually does.”
Industry jargon
A further factor for Harper is how advisers refer to the product.
“How long have we talked about labelling and jargon?” he continues. “As an industry we’ve made good progress, but we still lapse into system generated jargon/language. I still favour labelling IP as personal sick pay.”
Protection gap
The regulator’s work around the customer understanding and the protection gap is also a factor, Harper suggests.
“We agree with their direction – and have advocated for more. It’s not just about helping people take out the right protection in the first place, but making sure they understand it, keep it, and adapt it as their lives change.” he continues.
Ongoing communication
In terms of what the industry can do to tackle these problems, Harper calls for more ongoing communication, including annual benefit statements, more emphasis on post-sale understanding checks and encouraging reviews after life or job changes.
Lost message
Joanna Streames, owner of Velvet Mortgage and Insure Services, tells Health & Protection if six in 10 homeowners believe redundancy is covered, then somewhere between the point of advice, the documentation, and the customer’s understanding, the message has been lost.
“I don’t think it is just a case of clients being ill-informed. Policies are complex, people are busy – both advisers and clients.
“They will often remember only the headline outcome, which is this pays me if I can’t work and they lose the distinction between getting sick or getting made redundant with blurred lines over time.”
Not a one and done
Streames adds that protection advice is not a one-and-done exercise.
“Circumstances change and memories fade,” she continues.
“That’s why regular reviews matter but this is not an ideal world. Advisers are overwhelmed with pressure on compliance and administration so many may want to do regular reviews but it is just so difficult to know where to start with it all.
“Not many advisers have got it all sussed. I believe the vast majority of advisers explain deferred periods, exclusions and how and when you would claim but it is a lot to absorb in one sitting especially if alongside a mortgage application.”
All singing and dancing brochures
For Alan Lakey, director of CIExpert and Highclere Financial Services, LifeSearch’s findings dovetails with CIExpert’s Critical Thinking 2026 research which highlighted that more than 60% of policyholders believe their IP plan pays a lump sum and that their critical illness plan pays when unable to work.
Lakey points to a number of reasons for this level of confusion.
“Firstly, we have brochures which are all-singing-all-dancing. They probably give the impression that every type of protection is included within their plans.
“There is also an inability of consumers to understand various concepts, particularly when faced with a host of acronyms.
“And if advisers discuss the various protections then it could be that the consumer confuses what he could have with what is available.”
Not shifting the dial
Rhys Schofield, protection adviser for Peak Mortgages and Protection, says he does not find the results surprising.
“I asked the public a few years ago on the local spotted group when I was prepping for an IPAW [Income Protection Action Week] podcast what they thought about income protection,” Schofield says.
“Overwhelmingly the general public of Derbyshire just thought I was talking about PPI and I don’t think we’ve shifted the dial.”
Quality of advice
Schofield adds that the sector will not shift the dual unless it places more focus on the quality of advice.
“That means taking time to understand what risks bother our clients before shoving solutions down their throat,” he continues.
“If someone says ‘being unable to work due to accident and sickness’ we make it clear that this is the solution.
“If they say it’s unemployment, you present a different solution.
“Let’s not get bogged down in what products are called, focus on what they do for clients.”
Annual statements
Protection Distributors Group board member Roy McLoughlin, reveals he has seen a similar issue around product confusion with people with private medical insurance believing they will have a pay out if they have a critical illness.
“One might conclude that a large amount of these were purchased either directly or historically through bodies that no longer exist,” he continues.
“When we read these stories, it once again reinforces why we need to collectively keep in touch with clients . The most obvious solution is the PDG’s constant crusade to encourage all.
“Insurers need to send out annual statements to remind the consumer what they have and give details of the policy and ideally copy in any adviser if they exist.
“If these policies have been bought without advice the messaging should encourage people to seek out some validation or ideally encourage signposting towards some form of advice.”
Simpler explanations needed
Jo Pawson, head of protection and New Leaf Distribution, maintains the findings suggest the issue around customer confusion is less about clients not paying attention and more about how income protection is explained.
“Advisers can sometimes focus on technical terms such as ‘deferred period’, ‘sum assured’ and ‘own occupation’ instead of a much simpler explanation in language the client can understand and resonate with,” Pawson continues.
“Whether advice is delivered by an adviser or through a digital journey, clients should clearly understand what their policy does and does not cover. That’s why adviser-led annual reviews are vital, helping reinforce understanding of the cover and when it pays out, while ensuring it still meets the client’s needs.”
