Brokers are facing a protection affordability paradox as rising household costs make income protection more important to customers, but harder to afford, according to LSL Financial Services.
A survey conducted among brokers at the inaugural LSL Protection Forum in May found that 86 per cent of respondents see income protection as the area of greatest customer need, far ahead of critical illness cover at 7 per cent and life-only term assurance at 5 per cent.
Two-thirds of brokers surveyed said the cost of living, including bills, food and energy, was having the biggest impact on customers’ financial confidence. This was well ahead of mortgage rates and borrowing costs, cited by 15 per cent.
However, the same financial pressure appears to be making protection harder to put in place. Sixty-four per cent of those at the forum said the primary reason customers are currently citing for declining protection is price or affordability, with household budgets too tight because of other costs.
When asked how customer demand for protection was changing in the current economic climate, 57 per cent said there had been no real change and 8 per cent said demand was decreasing.
While this points to some pressure on demand where household budgets are stretched, that 35 per cent of respondents said demand was increasing offers encouragement that more are becoming aware of the need to protect their income.
LSL FS said the findings point to a difficult advice environment in which customers may have a clearer need for protection, particularly income protection, but less room in their monthly budgets to act on it.
Craig Hall, Director of Strategic Partnerships at LSL Financial Services, commented: “Findings from our Protection Forum last month showed an emerging paradox. On the one hand, the cost-of-living squeeze is making income protection more relevant. On the other, it makes affordability the biggest barrier to putting that cover in place.
“Customers are rightly focused on whether they could keep paying their mortgage, bills and other essentials should their income stop. That makes the advice conversation even more important.
“When budgets are stretched, brokers need to help customers look beyond the monthly cost and understand what they can realistically protect, where the biggest risks sit and how cover can be shaped around their individual circumstances.
“It is encouraging that a third of brokers are seeing protection demand increase, despite the pressure on household finances. But the affordability challenge is real, and there is more work to do to help customers understand their options and build the right level of protection around what they can afford.”
