Personal, Savings, Finance, Advice

Do your clients have these misconceptions about protection?

As an adviser, you know the importance of having insurance. But do your clients?

According to research conducted by Canada Life in March 2021, only 37% of adults in the UK had bought or had thought about buying life insurance. Other surveys suggest that people are put off by misconceptions about the cost and the honesty of the insurance providers.

In this blog, we’ll have a look at some of those misconceptions, so when you next speak to a client who is unsure about insurance, you can put their mind at ease and explain how it will benefit them and their family.

They don’t need insurance

This is perhaps one of the biggest objections and something that you might hear from clients who are:

  • Young.
  • Single.
  • Have no dependents.
  • Have no mortgage.

Now, with clients like this, it can be difficult to make a case for taking out an insurance policy – they have nothing that they need to cover.

For now, that is… their circumstances could change in the future. They could meet a partner, get married, buy a home together, decide to start a family… all of a sudden, they have a lot to protect.

It’s worth pointing out to these clients that as they get older, insurance becomes more expensive. When they’re young and in relatively good health, they’re much less of a risk to the insurer, and this is reflected in the cost. But as they grow older and their life expectancy decreases, the risk to the insurer increases – along with the price.

So, even if those clients might not need insurance right now, it can still be a good idea to set up a policy while they’re young and premiums are cheaper.

Some clients might be stay at home parents and think that they don’t need insurance because they’re not the main wage-earner. But what might happen if they were to pass away – could their spouse or partner carry on working with the children to look after? Could they cover the additional costs of childcare? A life insurance payout could help with those costs, allowing the surviving parent to keep working and provide ongoing financial stability for the family.

Some clients might have death in service benefits with their employer and therefore think that having a life insurance policy of their own is unnecessary. Death in service is a great benefit to have, and it will give the client some peace of mind – however most death in service benefits pay out three times the employee’s annual salary. This could be a significant amount, but would it be enough to cover a remaining mortgage balance, once funeral costs have been paid for?

And what would happen if the client were to move jobs? Not every employer offers death in service, so if the client leaves their current job, they could find themselves without protection. Having their own life insurance policy would mean that they are fully covered, no matter where they work.

Some clients think that insurance is something that only pays out in the event of their death – so what’s the point in having it? They won’t be around to see the benefit themselves, will they?

It’s worth reminding these clients about critical illness cover and income protection and explaining that they pay out in the event that they are diagnosed with a serious illness or have to take time off work due to illness or injury.

Lots of people think that serious illness or death caused by serious illness will never happen to them. That’s totally understandable – no one wants to think about those things. But the frequency of serious illness and death in the UK cannot be ignored:
• Someone is diagnosed with cancer every 2 minutes.
• 1 in 2 people will be diagnosed with cancer during their lifetime.
• There are 460 deaths a day due to heart or circulatory disease – that’s 1 every 3 minutes.
• Someone is admitted into hospital due to a stroke every 5 minutes.
Quite sobering numbers, aren’t they? Some of your clients might be shocked to learn about just how common these events are.

And remember, behind every one of those numbers is a person, perhaps with a family that depends on them, who may now be facing an uncertain financial future.

Insurance companies don’t pay out

A 2015 survey carried out by Drewberry Insurance found that on average, people thought that 1 in 2 life insurance claims were refused – they believed that only 50% of policies paid out.

You’ll of course be aware that this is not the case. But what are the real number of payouts?

Research conducted by the Association of British Insurers in 2021 revealed the following figures:

  • In 2020, 98% of all life insurance, critical illness and income protection claims were paid.
  • The total amount paid out to beneficiaries came to £6.2 billion – that’s an equivalent of £17 million a day.
  • Of the 2% of claims that were not paid out, the main reasons for rejecting the claims were non-disclosure of medical information when the application was made, or the condition not being covered by the policy.

It’s worth highlighting these numbers to your clients if they are under the mistaken belief that insurers do everything they can to avoid paying out.

As long as the policy is still in force, the payments are up to date, and the information provided at application was accurate, there is no reason why a valid claim won’t pay out.

What about the 2% of claims that didn’t pay? Looking at the reasons given in the ABI study, this is a perfect opportunity for you to explain to your clients the importance of getting the right advice about their insurance policy. They need to understand what is being asked during the application, as well as what conditions are covered by the policy. This is where you come in – you can answer their questions, guide them through the application process and explain anything they may be unsure about.

Insurance is too expensive

The price of insurance can vary from person to person, depending on the sum assured, the term, the risk and the client’s profile, such as:

  • Their age.
  • Their health.
  • Any existing medical conditions they might have.
  • Their weight and body mass index.
  • Whether they smoke.
  • How much alcohol they drink.

When you explain this to your clients, it helps them to understand how their profile and lifestyle affect their premiums and they stop seeing the price as some arbitrary and unfair figure. Knowing this information, they might even be inspired to make some positive lifestyle changes – they might lose weight, stop smoking, or cut back on the alcohol.

It’s worth reminding your clients that in general, insurance premiums are very affordable, starting at as little as £5 a month. It’s a relatively small price to pay, if they were to consider the potential impact of not having the right cover should the worst happen.

Also bear in mind that your clients will only think protection is expensive if they don’t see the value in it. Hopefully, what you’ve read so far will help you to illustrate this, but we’ll finish off this blog with a refresher on the general benefits of protection policies.

Life Insurance

A life insurance payout goes straight to the client’s family or other beneficiaries, meaning that it can be used for a variety of purposes, such as:

  • Paying off a remaining mortgage balance so their family can own their home outright and not have to worry about meeting monthly mortgage payments.
  • Paying for their funeral costs so it’s one less thing for their loved ones to deal with during what is already a difficult time.
  • Clearing any existing debts they might have so their family don’t have to deal with creditors.
  • Providing an inheritance or gift for children – setting up saving accounts, a university fund, or money towards a deposit on a house or other large purchase.

Over 50s Life Insurance

Over 50s life insurance is a specific type of cover aimed at meeting the needs of your older clients, between the ages of 50 and 80. It’s an ideal product for a client who wants to cover funeral costs and leave a gift to family members.

One of the main benefits of Over 50s cover (along with the competitive pricing) is that there are no medical questions to answer during the application – this can come as a relief for some clients, who are perhaps not in the best of health, and might be worried about answering personal medical questions.

Critical Illness Cover

A critical illness cover payout can help your clients to cover living expenses if they’re too ill to work, or the costs of any adjustments they might need to make to their home to be more comfortable.

As we’ve mentioned above, when you consider the chances of developing a serious illness, critical illness cover becomes a must. It works well with a life insurance policy, to give well-rounded protection.

Income Protection

If you have clients who are self-employed, then you should be having a conversation about income protection. It can be a weight off their mind, knowing that they have some regular income coming in and can cover priority expenses, should they be off work due to illness or injury. Having a policy in place can mean that they don’t have to dip into any savings to cover expenses.

Over to you

We hope this has given you some ideas about how to deal with any misconceptions your clients might have about insurance. The aim of raising the above points with your clients isn’t to terrify them into taking out a protection policy – rather, it’s to start an open and honest discussion about the realities of life and health, so you can help them protect what matters most.