The myths and misconceptions of protection: part 2
Robert Betts, Market Development Manager at Legal & General, discusses how clients often forget what their most valuable asset is, leading them to overlook income protection.
Legal & General’s recent Deadline to Breadline report revealed 6 common myths and misconceptions around protection. In our previous blog we looked at the most common reason why clients don’t take out income protection. In this post, we’re looking at the next most common misconception – the client’s perception of their own worth.
‘I don’t think I have a value’
Ask any client what their biggest assets are, and they are likely to list the tangible things that they value: their home, car, savings or maybe even their pension. These answers were mirrored when we asked the same question in our recent Deadline to Breadline research.
The research revealed that just 11% of people saw themselves as their biggest asset. Can we conclude then that 89% of people don’t view themselves this way? And what does it mean if they don’t? How can we help change people’s perception of themselves so that they understand their own value and vulnerabilities and consider the need to protect themselves?
Not all valuable assets are tangible
Financial advisers have a massive role to play in helping their clients understand this exposed asset, to consider the financial impact if it is lost and suggest solutions to protect it. The top asset that 36% of people listed in the research was their property. Could we use this type of answer to help people understand the value of insuring themselves?
If you ask someone “do you insure your home or contents?” most will say yes. And if you ask them why they have contents insurance, they will probably say it’s to protect possessions and valuables, in case they are damaged, stolen or destroyed in a fire. Similarly, 14% of respondents listed their vehicle or car as a bigger asset than themselves.
If we adopt the same line of questioning around insuring a car, it reveals an understanding that there is a legal requirement to have it, but also the financial loss they could suffer. The law only requires you to have third party cover to drive on the road. Why, then, do most people take out full comprehensive motor insurance? Can we use the same questioning techniques when it comes to protecting life, health and income?
All of this demonstrates an understanding of the risk and the need for your client to protect themselves against future unplanned personal financial costs. It shows they can visualise the scenario and imagine the cost associated with repairs and replacement.
These questions lead to most people saying they buy insurance for “peace of mind”, “to ensure I can replace it”, or “so that I am not out of pocket”.
Helping the client see that they are their biggest asset
Most people don’t consider that their biggest asset is likely their own ability to earn an income. Some simple maths can be quite a revelation. The average annual income is around £35,000pa*. For a 20-year old working for 47 years to a normal retirement age of 67, they could be earning a whopping £1.64million during their working life (47x£35K). This compares favourably with ONS data that shows the average worker could earn over £1.2 million in their lifetime.
In this context, a client’s earnings potential dwarfs the value of the assets they choose to insure. The average home is worth around £232,000*, the average price of a used car is worth around £10,000**, and the average savings pot is slightly above £2,700*.
By using relatable examples based on the client’s individual circumstances could help to see themselves as a major asset, and consider the cost of replacing their income. The research highlights that people are 6 times more likely to insure their home than their income, perhaps because they have never looked at themselves in this way before.
Once the value of anything has been revealed and appreciated, and the cost of insuring its replacement has been considered, people often take positive action. That same “peace of mind” might be achieved by putting an insurance safety net in place to protect their income if they are unable to work due to sickness, illness or accident.
In reality, it’s probably not a conscious decision to not insure themselves, but simply that they have never considered it.