Why advisers hold the key to the future of income protection

One of the most significant aspects of financial planning that often gets overlooked is income protection - 53% of consumers think income protection is important but only 7% have it. Financial advisors play a pivotal role in ensuring that young individuals grasp the concept of income protection and its importance in their financial strategy.

What is income protection?

Income protection insurance is a type of coverage designed to provide financial support in the event that an individual is unable to work due to illness or injury. This insurance replaces a portion of a person's income, helping them to maintain their standard of living while they recover. For young people who may be just starting their careers or establishing financial independence, having income protection can be a safety net that alleviates the stress of unexpected circumstances.

A growing interest

With finances and financial stability being the focus of so many in the current climate, it’s important that there is a long term view provided for young adults looking to make their first significant financial moves.

We recently explained that over 70% of young adults (18-29) are interested in life insurance as a topic yet, despite this, 65% haven’t consulted with an IFA – presenting a great opportunity.

With there being such an untapped demographic, financial advisors have the ability to really shape the future of life insurance, including income protection.

The income protection gap

The AMI Protection Viewpoint 2024 report, showed that whilst 53% of people find income protection to be important, only 7% of people own a policy. Similarly, 55% of people view accident, sickness and unemployment protection to be important but again only 7% of people have it.

With such a disparity in those who believe cover is important and those who have it, there is a huge area for improvement from insurers and advisers to ensure that people are aware of the benefits of such policies and are adequately covered.

It’s encouraging to see however, that there is an increase in those who have an income protection policy in younger generations, with 13% of Gen Z and 15% of Millennials having cover compared to 5% of Gen X. Whilst some of that may be down to savings and life situation, it shows there is an awareness and willingness to find cover.

Encouraging proactive planning

The earlier young people begin to think about income protection, the better prepared they will be in the event of an unforeseen incident. As we reported previously from our research, a significant proportion of 18-29 year olds are planning to buy a house, get married or start a family in the next few years, meaning the necessity for protection is approaching. Advisors should be encouraging proactive financial planning, advocating for the establishment of safety nets like income protection insurance as part of a broader financial strategy put in place before major life events happen. This foresight can lead to more secure financial futures and can significantly reduce stress and anxiety related to potential income loss.

Financial advisors play a crucial role in educating consumers on income protection, not just in the here and now but for years to come. By bridging the knowledge gap, providing personalised advice, and developing financial confidence, they enable the next generation to make informed decisions about their financial futures.

As young individuals navigate their careers and face various life challenges, the guidance of a financial advisor can be the key to ensuring that they are prepared for the unexpected, ultimately leading to a more secure and stable financial landscape.