Generation rent comes under the spotlight in this weeks “How to talk protection with different clients”. This time we have provided Samantha Haffenden-Angear from Drewberry Inurance with a basic client demographic and asked her to provide us with her views on how to discuss protection with them and the types of products that may be considered. In this article Samantha discusses the difficulties of dealing with millennials and things to consider when advising the self employed.
The client we asked Samantha to consider is:
30 years old
- Living with a partner (not married)
- No children
- Self-employed earning £40,000 – tradesperson (Scaffolder)
- Savings £10k
- No current cover
“Our client here is fairly typical of the increasing Generation Rent demographic, one that the protection industry has hitherto perhaps failed to engage as effectively with. Around 1 in 5 (13 million) people in the UK rent from a private landlord, with millennials and younger households making up the biggest group, the so-called Generation Rent.
Although many in this age group may choose to rent, especially if they’re still in higher education, Generation Rent generally describes those who have been priced out of the housing market and are unable to get onto the property ladder.
Like an increasing number of millennials, our client is unmarried and instead cohabiting with a partner. Since the 1970s, the average age of marriage has steadily increased, with the average marriage age now standing at around age 38. He is currently childless as well, again like many in his age group and indeed representative of the declining UK birthrate. Absent here therefore are all of the life events that may have traditionally triggered a protection insurance discussion (marriage, property purchase and childbirth). Nonetheless, at Drewberry we do reach a large number of these individuals, generally by being an online tech-focused adviser and also by having a younger group of advisers , who are well-placed to understand the needs and concerns of these clients.
Our showed that the self-employed are dangerously under-protected, with just 9.4% of those we polled having any Income Protection. He does have some savings, but like a lot of households this will be insufficient to survive for more than a few months should he be out of work due to ill health. Indeed ONS figures show the average UK household monthly spend to be around £2,500 (and in fact more for renters). These are important points to articulate to the client when discussing just how important protection insurance is for them and whilst we’d never wish to distress someone, it can be helpful to describe the reality of their circumstances and to imagine how they would cope if they fell out of work and didn’t have protection insurance to fall back on.
Our view based on the facts presented would be that Income Protection is the most pressing need, given the limited savings provision and the lack of employer sick pay and Statutory Sick Pay as a sole-trader. There are now policies targeted at renters, with Legal & General and Liverpool Victoria both offering specialist Rental Income Protection products and Aviva adding a rental element to the Guaranteed Increase Option on their Income Protection Plus plan.
Given the client’s occupation, which will be deemed a higher risk, we are more likely however to be considering a policy from one of the Friendly Societies (British Friendly, Cirencester Friendly, Holloway Friendly, Shepherds Friendly or The Exeter). There won’t necessarily be specific policy clauses targeted at renters, but as long as the cover is set up correctly, this shouldn’t be too much of an issue.
An important detail to get right when advising a self-employed client on Income Protection Insurance is their income. For the purposes of establishing the monthly benefit the client is entitled to, the insurer will base payments on their taxable income, less any tax-deductible business expenses (tools, van, materials etc). In the event of a claim, most insurers will require income evidence in the form of the claimant’s most recent tax return, so it’s extremely important advisers are thorough when confirming income and earnings during a fact find to prevent over-insurance.
Some insurers provide a minimum benefit guarantee if future earnings have decreased when a claim arises, but ultimately many clients will be extremely disappointed to find their benefit payments reduced even if the fault is their own. For this reason we will always ask self-employed clients to check their tax returns if they are unsure of their income and contact them annually to check there has been no reduction (and, if there has, reduce their cover and premiums accordingly). At the instigation of the Income Protection Task Force, the Protection Distributers Group currently has a project on the go to review Income Protection Insurance for the self-employed, as this issue around earnings is particularly problematic, especially given the fluctuating income of many self-employed individuals, particularly in light of Covid.
Given the client’s occupation, an age-banded premium is likely to be the more attractive option. Here the price will be determined by the client’s age (and of course any medical underwriting factors), rather than their occupational risk profile (although Cirencester Friendly do offer a competitively-priced guaranteed premium option for higher risk tradespeople). As they’re working as a scaffolder it will be necessary to check whether there is any work at heights over 40 ft, as some insurers will decline cover if there is.
We will generally recommend long-term cover where there is no restriction on how long a claim is paid and given the client’s young age, premiums should be reasonable. Most insurers now offer budget short-term options, where a claim will be limited to either one, two or five years, which offer an ‘entry level’ of protection if cost is an issue.
The deferral period in this scenario would be determined by the client’s savings, as well as any secondary household income from his partner that could support them for a period of time. In my experience a short defer period of 4 weeks is likely to be suitable for this client, especially if they do not wish to exhaust all of their current savings. As they build up those cash reserves over time this could be increased to lower the monthly premium.
In my opinion a degree of importance should also increasingly be placed on certain added-value benefits offered by insurers. These provide access to various support services or benefits above and beyond the core claim payment. I find the GP services many insurers now offer to be particularly valuable and really resonate with my clients, especially in light of the current difficulties accessing an NHS GP.
Given the physical nature of this individuals occupation, I may also highlight physiotherapy benefits offered by several insurers. Protection Guru have a number of detailed resources which help the adviser keep abreast of the added value benefits offered by different insurers and we recently published some research on free health services included by insurers on their products.
Whilst Critical Illness Insurance may be an option for this client, it’s something I’m unlikely to recommend over Income Protection in this instance. Life Insurance may be a requirement, depending on the household situation and whether the partner is dependent. As they have no children it seems unlikely the partner is not working, however if their income is lower then they may require a financial safety net following the death of the main household earner.”