Not recommending any Income Protection Insurance when even a little would do

Income protection insurance can be expensive. And, of course, ‘expensive’ is a relative concept. Something that is easily affordable for one person may not be affordable for someone on a much lower income.

Sometimes, clients simply cannot afford to pay any sort of premium for income protection insurance. Clients on low wages and/or clients facing high personal expenses (think single parent with several children) may find the premiums simply unaffordable.

In these cases, many advisers simply do not make income protection insurance part of the scope of their advice. The SOA, if any is prepared, simply does not mention income protection.

We think this is a mistake, especially where the client’s lifestyle – and/or their dependant’s lifestyles – would really suffer if the client was to lose their employment income. Paradoxically, this is often the case where the client’s cash flow already has a lot of claims on it. People on the lowest incomes often suffer the most if those incomes are lost.

In those cases, advisers should alert clients to the presence of limited income protection cover via a super fund.  Most funds make a limited amount of cover available, for a limited period of time, as the default option. This amount can be ‘dialled up’ (again, usually within certain limits) if the member chooses and qualifies.

The benefit to the cash-poor client is that the insurance premium is paid out of their super balance, which was not available to them on a daily basis anyway. So, day-to-day cash flow is not compromised, but the client and their family achieve a better, albeit still imperfect, level of protection than they otherwise had.

This is an example of an imperfect solution still being a partial solution, and thereby better than no solution at all. The SOA should make clear this the client’s income situation is such that this form of IP is the best one available.

The Dover Group