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Don’t let an unpredictable income ruin your clients cover: 3 must-read tips for income protection

Don’t let an unpredictable income ruin your clients cover: 3 must-read tips for income protection

Protecting a client’s income is paramount in any financial plan, as it forms the basis for their daily expenses and future aspirations. Without it, few can manage for long if illness or injury strikes. The challenge, however, is that income and expenses fluctuate, making it crucial to understand and stability of income when recommending income protection plans. Such plans can provide coverage if income drops pre-claim and also offer options to increase coverage if expenses rise. In this articles we interrogate three ways advisers can better protect such clients.


How Do Income Protection Plans Provide a Safety Net When Income Drops?

While it’s natural for people to expect their earnings to increase over time, unforeseen circumstances like a career change or downturn in trading can cause a dip in income. This can be problematic when claiming on an income protection policy, as the monthly benefit amount is typically based on pre-incapacity earnings. Over-insurance is a common issue, leaving clients paying for coverage that won’t be paid out. In this article, we’ll explore minimum benefit guarantees, how they function, and how various insurers compare.

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Removing the link between income and benefit amount

As self-employment, zero-hours contracts, and the gig economy become more prevalent, traditional income protection policies may no longer be suitable. Monthly benefit amounts are typically based on pre-incapacity earnings, which can result in over-insurance or insufficient coverage for those with unstable income. Over-insurance can leave clients paying for coverage that won’t be paid out. To address this, non-financially underwritten income protection plans may offer a solution, providing coverage without the financial assessment risk. It’s vital to explore all options to ensure that income protection policies reflect the realities of today’s ever-changing workplace.

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Increasing Income Protection cover

Income Protection plans often fail to keep pace with a person’s changing life and career, as their income and expenditure increase over time. Guaranteed Insurability Options (GIOs) are commonly used to address this issue, but they can be difficult to enforce and restrictive. Vitality’s latest launch promises more flexibility in this area, and we take a closer look at how it compares to the market. All Income Protection plans offer some form of GIO, which allows clients to increase their coverage based on specific events or policy anniversaries.

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Watch out for future “Everything you need to know” pieces where each week we will cover a different topic and provide you with the information you need to know to discuss the topics with your clients.

About The Author

Adam Higgs

Adam leads Protection Guru's detailed protection research and benchmarking of both product and operation features provided by insurers and has a vast knowledge of the protection market. He has been instrumental in building the protection comparison service Quality Analyser and maintaining the data to enable adviser to quickly and easily compare protection products based on qualitative measures. He also works with adviser firms to help in panel reviews and with insurers to help them understand the shape of the market, their strengths and the areas that could be improved in their products. In his spare time and when not spending time with his wife and two children, Adam is a keen Arsenal fan and enjoys hacking his way around a golf course.

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