The so-called squeezed middle need to consider various protection options, writes Ellie Duncan.
It is usually the case that the younger you are, the more invincible you feel but illness, and other life events can happen to anyone at any time.
Taking out protection seems like a sensible idea as you grow older but even those as young as 35 years old may want to think about what they would do if they were no longer able to work or pay their mortgage.
Do they have any protection in place should the unexpected happen?
It may come as a surprise to know that in 2016 the average age of a critical illness claimant was 48 years old and the average payout was nearly £83,000, according to Jennifer Gilchrist, proposition lead at Royal London.
Peace of mind
One of the benefits of encouraging clients to consider their protection needs at an earlier age is that premiums are cheaper.
But cost is not the only reason for 35-55 year olds to make sure they have cover.
“Advising customers to take out protection at an early age means your clients can have confidence that they don’t need to worry about the future, as they can rest assured that whatever happens they have financial protection in place,” says Ms Gilchrist.
Rob Harvey, independent protection expert at Drewberry, agrees peace of mind is typically top of the list of benefits when taking out cover.
He adds: “Also, as we get older and earn higher incomes and build up more in savings, we may find that we’re ineligible for certain state benefits should the worst happen and we can’t work.
“There’s also less family support available for those aged 35-55. At this age, people may even be looking after dependent parents so have fewer places to turn if they suffered financial hardship.”
It is often the case that by the time an adviser’s client is in this age group, it is not just themselves they are having to think about.
Many people in their 30s and 40s will have young children or teenagers who are dependent on them, and possibly ageing parents.
As Stephen Crosbie, at Aegon, points out: “As long as people provide an income to support themselves and their family, all forms of protection remain important.
“In general terms, people in their late 30s and 40s, and their families, have the most to lose should they be unable to work due to illness or should the main breadwinner die. Mounting expenses make it more essential to have a financial safety net in place.”
As we get older and earn higher incomes and build up more in savings, we may find that we’re ineligible for certain state benefits should the worst happen. – Rob Harvey
He suggests: “Considerations such as how you would keep a roof over your head, how you would support your family, how you would continue to pay maintenance payments if divorced, are all relevant to this age group.”
The choice is yours
The good news is, there are lots of options and solutions for clients in this age demographic, confirms Ms Gilchrist.
“The most popular protection products are life, critical illness cover and income protection”, she says.
“If you were to think about what type of cover people need, it’s best to think about it in terms of the risks that they are effectively self-insuring if they don’t have any cover.
“The biggest risk in general terms is being unable to work. A typical 35-year-old woman will have a 40 per cent plus risk of being off work due to sickness for longer than two months and so income protection would be their greatest need, followed by critical illness, then life cover.”
Fraser Glass, financial planner at Fryer Glass, explains: “The main protection issues that wage earners and their partners should be clear about are premature death, and if they cannot work for long periods due to illness or injury.
“Even premature death cover is less important than income protection if there are no children involved, because sad though it is, the survivor should have the time and choices to rebuild their (financial) life, or if later in life, [they] have available pension funds or a partner’s accumulated wealth.”
He warns: “If you are seriously ill or injured but do not die, life insurance does not pay out.”
But those protection priorities may change as an adviser’s clients approach their 50s, when the prospect of retirement, even if it is still 15 years away, becomes increasingly important.
Mr Crosbie notes: “With the state pension age on the rise, people are working for longer and therefore may need to protect their income for a longer period of time so they can try to maintain the standard of living they are used to.”
Advisers are the obvious port of call for those with protection needs.
Mr Harvey suggests a whole-of-market insurance adviser will have access to every provider available to ensure their client is getting the best deal, while also receiving suitable advice on the financial products they’re buying.
Clients with pre-existing medical conditions will also need to be careful about the protection products they choose.
With the state pension age on the rise, people are working for longer and therefore may need to protect their income for a longer period. – Stephen Crosbie
He continues: “While life insurance might seem a simple product to understand, you may still prefer to receive independent advice to ensure it fits exactly to your circumstances.
“This is particularly the case for the growing number of clients coming to us with pre-existing conditions and/or a higher BMI who may be eligible for ‘impaired life’ protection. These are typically only sold through brokers.
“For critical illness cover, it’s really important to compare policies side by side, as the number of illnesses covered, and the exact definitions of these illnesses, will vary from insurer to insurer.”
Ms Gilchrist observes taking out a mortgage for the first time or remortgaging is a useful time to address protection needs.
“Access to protection products is relatively easy these days with customers being able to get cover over the internet through providers, using a comparison service or through engaging an adviser who will be able to source and recommend the best type of cover to suit their needs,” she adds.
Ellie Duncan is deputy content plus editor at FTAdviser