Are your clients truly covered for disability?

As a Financial Adviser, you know that your client’s income is essential to maintaining their lifestyle. Have you advised your clients to take out Income Protection (IP) to ensure that their income will be protected if they become disabled? What kind of IP does your client have? Does it cover both temporary and permanent disability? It should.

While more attention has recently been paid to the importance of disability cover, FMI believes that the general market approach to disability is flawed for two reasons: temporary cover is largely ignored and permanent cover tends to emphasise capital disability pay-outs. This means that your clients are at risk should they suffer a temporary disability or deplete their lump sum payment.

TEMPORARY COVER IS ESSENTIAL

Research shows that 3 in 10 people will suffer a temporary disability before they retire and that individuals are much more likely to suffer from a temporary disability than a permanent disability. The majority of FMI’s claims are temporary in nature, lasting three months or less, and 47% of temporary claims in 2011 were multiple claims (which are not covered by permanent disability cover).

Despite these statistics, most FNA tools emphasise permanent disability and most clients are only concerned about what would happen to their finances if they could never work again. However, the risks of a temporary disability can be more devastating than expected. For the small business professional or self-employed, temporary disability might mean an interruption in cash flow, an inability to support dependants, or sacrificing expenses such as insurance or investments. For salaried employees, standard disability benefits often don’t cover illness-related claims or 100% of the insured’s income.

Designed to pay out a monthly amount over the disability period, TIP greatly reduces the stress of financial pressure, enabling the client to focus on their recovery until they are able to return to work.

CHOOSING PERMANENT DISABILITY COVER

When it comes to permanent disability, cover can be paid out as capital disability or as income replacement benefits (also known as permanent income protection):

Due to the different risks involved, FMI recommends a combination of lump sum and income replacement benefits to ensure that the policyholder is properly covered for permanent disability.

HOLISTIC DISABILITY COVER

At FMI, we believe that the best way to design a client’s disability cover is to put in place temporary and then permanent IP so that clients enjoy a combination of both benefits. Temporary IP will ensure that the client is protected against temporary disability. Permanent disability should then be addressed through a combination of both capital disability and income replacement benefits. Looking at IP holistically means that, should an individual be disabled, their lifestyle will be protected.

For more information, contact our FMI Financial Adviser Distribution Team on 0860 10 52 08 or sales@fmiwp.