Income Protection isn’t always an easy story to tell your clients. It’s only natural that many clients will prefer to shy away from thinking of scenarios in which they get sick or disabled.
And with the increasing cost of living, people are facing hard choices about what to spend their money on. Income Protection is often seen as unnecessary and complicated, with many people not even sure what the cover is for.
What many don’t realise is that Income Protection is the protection policy that they are most likely to need to claim on. It’s there not only to protect the big things, but to make sure your clients can continue to enjoy the lifestyle they are used to.
We have assembled a list with the most common objections and the responses that may help you show your client the value of buying Income Protection.
‘It is too expensive’
The most common reason why clients do not take out this policy is because they think it is very expensive. More often than not, this is a misconception. For example, when your client is 40 years old and insures an amount of € 1,000 per month with a deferred period of 26 weeks and a duration of 20 years, they could pay as little as € 16 in premium a month - this is the same as the average monthly premium for pet insurance.
Any Income Protection is better than no Income Protection. Why not ask your clients how much they'd be willing to spend on Income Protection and take it from there? Income Protection is one of the most flexible protection products in terms of budgeting. To lower the premium, you could extend the deferred period, reduce the monthly benefits, remove indexation, or shorten the duration of the contract.
It may be worthwhile to run a few quotes to provide your client with a few options.
‘It won’t happen to me’
In modern psychology this is called the "Optimism Bias" which roughly translate to our human tendency to trick ourselves into feeling positive about an outcome that is not in line with the actual odds. The reality is that a car accident or cancer can happen to anyone. Whether your client is young or old, man or woman, blue or white collar, circumstances may arise that make them unable to work for a prolonged period of time.
Just like it is never too early to think about retirement, it’s also never too early to hedge against a potential loss of income. Insurance is best bought before your client needs it. When your clients are young and healthy, their underwriting will be easier, and their rates will be better. There are many advantages to buying a policy now instead of later because your healthy clients will benefit from their favourable "insurability".
‘The state will look after me’
When your client gets sick and is an employee, they can qualify for Illness Benefit[i]. Illness Benefit is paid for a maximum of 1 or 2 years depending on the number of social insurance contributions your clients paid since they started work. Self Employed clients have no access to Illness Benefits.
When your client is still ill when their Illness Benefits are due to stop and is likely to be permanently incapable of work, they may qualify for an Invalidity Pensioniii. This is granted after assessment. You must prove that you are unable to work for the next 12 months. This can be hard to prove and easy to challenge.
If your client does not get Invalidity Pension and have a disability that is expected to last for a year or more, they may qualify for a Disability Allowanceiii. As a last resort they may get a Supplementary Welfare Allowanceiii.
However, living on public health benefits can be extremely challenging. None of the personal rates in any of these schemes exceed € 225.50 a week with limited additional payments available for (adult) dependants. These maximum personal rates translate into less than € 1,000 a month which will hardly cover your clients' monthly billsiii. In reality, one in five persons in Ireland that are unable to work due to long-standing health problems are living in consistent poverty[ii]. The state does in most cases simply not provide sufficient Protection.
‘I have savings’
What if your clients set aside money on a regular basis to save for a rainy day? Does this provide an alternative solution? While this could be the case, building a personal safety net takes time. And if they'd do the math, the amount that your client would have to set aside can turn out to be unrealistically high. It takes discipline and time to build up such a large sum.
Emergency funds or ‘rainy day’ savings pots that Irish households varies substantially. Economically precarious households have less than a week’s worth of spending on essentials in liquid savings. Even more affluent households only have somewhere between 7 and 10 months’ worth at their disposal and around 1 in 6 households have no savings at all[iii].
Losing your income can be costly. What if your client becomes permanently unable to work at the young age of 45? Will they be able to pay their rent, mortgage, and households bills until they start receiving a pension? And will their pension be sufficient when they do not have a regular income to save for it?
‘My partner has a regular income’
At its core, this argument makes sense. Why would your client put money into an insurance policy if their partner's income suffices to cover the basics, especially when their partner provides the largest part of their family's income? Indeed, when there is a partner with a (much) high(er) income, this can be true. More often than not, losing one source of income will severely impact a couple's standard of living. People tend to overestimate their ability to cut costs.
A (long-term) disability or illness may also result in additional costs (rise of medical bills, additional spending on childcare or household help). Tip: a serious illness policy can offer financial relief to deal with the additional costs of a serious illness.
Lastly, your client's partner's income is not guaranteed either. Their partner may also lose their ability to provide an income. And although Ireland has one of the lowest divorce rates in the E.U., the number of couples filing for divorce has been on the rise.
‘I’ve got Income Protection at work’
When your client has to decide if they need additional Income Protection, it is important to find out what their employer would provide them with if they needed to take time off of work due to illness or injury. It is very well possible that they have sufficient cover but as personal circumstances differ, whether your client can get by on the replacement rate provided by their employer is not always the same. And most employees will not be able to tell you how much cover they have. Most Income Protection policies do not cover the full amount of 75% of their income (before tax, minus any state illness benefit). You could ask your client to bring along their employee benefits booklet and verify their cover with them.
[i] Citizens Information, August 2023