Royal London

Young, footloose and cover-free

Ellie Duncan

Deputy Content Plus Editor for FTAdviser

Young people are not immune to life’s twists and turns, so they need to make sure they have decent income protection, writes Ellie Duncan

Many millennials are either not aware of protection products and the benefits they can offer, or are of the perception protection is for those in the older age groups.

As Emma Thomson, head of customer care at LifeSearch, puts it: “Millennials might think they don’t need protection because many of them don’t yet have a mortgage or children, and they may feel long-term sickness and death are issues for older people. But they shouldn’t dismiss it.”

She insists: “Even young adults can be off work due to sickness or injury, and still need to pay the bills and rent.”

Typically, most people take out protection for the first time in the form of life insurance when they buy their first home.

But with many millennials on increasingly precarious job contracts, such as zero-hour contracts, while struggling to save anywhere near enough for a deposit given how high rents are in cities, why might they need protection?

If they do not have a long-term career and are still renting, are there any protection products that might meet their needs?

A product for working people

Yet, sick pay through work is often much less than people assume, savings are typically insufficient and while relying on parents might be an option, it’s not ideal in the long-term, according to Ms Thomson.

Income protection could be the most useful form of protection for millennials, argues Jennifer Gilchrist, proposition lead at Royal London.

“It has become more common for younger people to work flexibly, which means fewer people have the security of sick pay or employer-funded benefits such as income protection”
- Victoria Slade, Drewberry

“Working millennials should consider income protection (IP) as a priority. It’s the product most working people should take out,” she says.

“IP provides a replacement income if they develop a short or long-term condition, were taken seriously ill, or had an accident that prevented them from working.”

Ms Gilchrist notes: “As a lot of millennials also fall into the ‘generation rent’ cohort, where they are unable to get a foot on the housing ladder and have minimal savings, the financial safety net that income protection provides will mean they can focus on getting better, knowing they can still pay their rent every month.”

For Victoria Slade, independent protection expert at Drewberry, the gig economy is even more reason to have some form of protection.

“The rise of the gig economy has largely, although not exclusively, impacted millennials,” she acknowledges.

“It has become more common for younger people to work flexibly, which means fewer people have the security of sick pay or employer-funded benefits such as income protection.”

She explains: “Income protection is there to pay out monthly benefits if there’s anything that medically renders an individual unable to work and can be vital for someone without much or anything in the way of sick pay cover.

“What's more, it pays to get this cover while you’re young and lock in premiums at the age you are when you apply, rather than apply when you’re older and face an automatic increase due to your age.”

Cost versus value

Another reason some millennials may cite for not considering taking out insurance is the cost of the premiums.

But Ms Gilchrist suggests there are some options for those on a budget.

“If money is tight they should also consider budget types of IP which pay for a shorter fixed term with a limited payment.

“This type of short-term IP is ideal when you don’t have much spare cash,” she notes, adding that when finances improve, millennials may want to consider upgrading to full IP, which will pay out until they recover or retire.

Rob May, a director at Risk Assured, points out: “Millennials are generally in the wealth building stage of life, with limited financial assets.”

He explains this is why product ranges aimed at millennials need to consider two key points: budget constraints and instant gratification.

“Products, such as limited payment term income protection policies, can provide a cost-effective route for covering specific monthly outgoings. In addition, decreasing term policies used for protecting capital repayment mortgages are available at competitive premiums,” he says.

“Added-value benefits that people can access when they buy protection insurance will appeal to people who purchase protection”
- Jennifer Gilchrist, Royal London

But how to increase awareness around protection and the various types of cover available to millennials if they are not buying houses?

Ms Slade observes: “Mortgages tend to be a major impetus to get life insurance, but with homeownership among millennials low thanks to rising house prices – they’re not called ‘Generation Rent’ for nothing – fewer millennials tend to look for life insurance than their older peers.”

A 2017 survey by Drewberry found just 23.3 per cent of those aged 20-29 had life insurance, compared to 41.5 per cent of those aged 40-49.

She points out that these findings correlated with the 29 per cent of people in the 20-29 age group who had a mortgage, in contrast to the 55.7 per cent of those aged 40-49.

Technology

Potential answers to the question of how to get more young people the insurance they need could be the use of technology by protection providers, and the additional benefits or services that come with the protection plan.

Ms Gilchrist believes access to protection is helped by technology making the process easy and slick.

“Added-value benefits that people can access when they buy protection insurance, like ‘Helping Hand’ from Royal London which offers services such as counselling, rehabilitation and second medical opinions, will appeal to people who purchase protection as they can use that from day one of the policy and it is a tangible benefit,” she notes.

“I think these types of add-ons are becoming an increasingly important part of a protection proposition.”

For many, including Ms Thomson, the protection industry must do more to attract millennials, although she acknowledges improvements are being made.

“Vitality is leading the way with their advertising, with subtle messages from celebrities about brand rather than product, and about being healthy rather than about insurance, and they are more likely to appeal to younger consumers,” she adds.

“Insurers who offer additional benefits, such as discounted gym memberships, virtual GP services and travel and retail benefits, are more likely to appeal to millennials.

Ellie Duncan is deputy content plus editor for FTAdviser


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