Rethinking income protection

Kimberley Dondo   00:00 - 00:25
Hello and welcome to our latest episode of the Money Talks podcast in association with Royal London. In today's episode, I'm joined by Gregor Sked, Senior Technical Manager at Royal London, and our special guest, Paul Roberts, Propositions and Distribution Director at CIExpert. So, thank you both for joining me today.

Gregor Sked   00:25 – 00:27
Thanks for having us.

Paul Roberts   00:28 – 00:30
Yep, looking forward to it.

Kimberley Dondo   00:31 – 01:09
So Royal London is the proud sponsor of CIExpert’s Critical Thinking 2026 report. And obviously Paul has joined us today to discuss the key themes and opportunities this highlights for advisers. So, something that stood out to me from this report was that only a minority, 22%, know how long their employer's sick pay lasts. And while there's a general misunderstanding of what income protection typically covers, when this is explained, its perceived relevance increases. What do you think this tells us about where the real advice gap is?

Gregor Sked  01:10 – 03:13
Thanks, Kimberley, and yeah, thanks for having us again. It's exciting to have Paul here from CIExpert and actually get to drill into some of these stats from the latest Critical Thinking report. I think the point that you mentioned there is really quite stark. One of the challenges that we do see is that concern of understanding what income protection is. And I think the idea as to whether or not it's going to be a growing concern is one that I think we'll wait to see really.

I think there's no surprise that there probably are a lot of patches of uncertainty and confusion when it comes to income protection. We've seen the FCA highlight it within the Pure Protection Market Report around the lack of understanding. And I think what the gap that we're seeing says is that it's not a gap around getting the conversation started. I think it's around the understanding and the clarity of what it is that we are being discussed. So, if you're saying there are only 22% know how long their sick pay lasts for, I think on that, most people probably aren't making what you’d call an informed decision about the income risk that they've got. A lot of the time it probably is a bit of a guess. And actually, thankfully, I would say advisers are key here. Advisers are often the first person that's there to make that individual understand those risks and the assumptions that they might be making. I think the really encouraging part is that when you see how those perceptions change once income protection’s been actually explained. You know, that it’s there to replace income when sick pay stops. So, the perception of the relevance of the product really changes and it really shifts. One of the things I really took away from the report was that 43% of individuals said it felt more relevant, i.e. income protection, after they had the explanation as to what income protection is. And I think that rose to about 61% of Gen Zs and then 64% of millennials. So, the appetite is certainly there, but it's the understanding that's missing.

Paul Roberts   03:14 – 05:11
One of the most interesting things is when consumers look at what they actually have, and what they believe they have, and what they can claim from and how that relinks into an income protection plan in particular. There is a confusion between the understanding of cancer, heart attack and stroke being the primary claims that you can make from an IP plan against the likes of serious physical injury or musculoskeletal health or mental health or anxiety and depression, many of the other conditions. So, it's that lack of understanding at consumer level, which really underpins the propensity for somebody to buy an income protection product.

And clearly, when properly explained, as Gregor has just mentioned, the likelihood of a younger person taking out an income protection plan grows disproportionately as a result of the advice they've been given. And in that way, everybody listening to the podcast can make a decision in your own mind about how you approach income protection with your clients, the conversations you have with them.

In the Critical Thinking 26 report, you'll see a lot about reframing. And reframing is our way of saying a different way of thinking about something, a different way of approaching it and using different language to explain the problems that not having an IP plan or a critical illness plan might cause. Most of us assume we won't claim off anything, but for those who do, having both an IP and in particular a CIC plan side by side, there was a lot more eventualities, protects a lot more financial resilience, than having one or the other. But when an adviser correctly explains something, the consumers understand it, so their likelihood to buy the right product for them increases.

Gregor Sked   05:12 – 05:24
I think the language is key there, isn't it? We're saying, people aren't, they're not necessarily saying no, they're probably saying ‘I don't know’ in most cases. It’s a ‘I don't really know what it does and what it's actually there to do’.

Kimberley Dondo   05:25 – 06:04
Yeah, yeah. I think awareness is a big piece of this because you can't predict the future. You don't know what might happen, but understanding that having that support in the case that that might happen is important. And the report does paint a clear picture that Gen Z, I say Gen Z because I'm online, but also Gen Z, expected mixed or non-linear careers with people wanting cover that can move with them. Do you think income protection is designed for modern work and what does that actually look like?

Gregor Sked   06:05 – 08:26
It's an interesting one. I think certainly a lot of traditional assumptions that we would maybe think about income protection being targeted towards is probably becoming more outdated. So, a stable employer, static income, linear career progressions. I suppose those are becoming a little bit more outdated and people are moving jobs and maybe looking at them more flexibly. Because they want something that will grow with them and grow with life as it changes. And again, that's something that the report highlights a lot is the importance of the cover, but also making sure the importance of the cover in terms of what it can do. It can move with you between jobs and employer types and that again, a clear understanding of how it works. If you do maybe change your working pattern, your working roles and what worth and how you work.

Modern working in my eyes, I wouldn't say is about jobs changing, it's about life stages changing and actually thinking about that more broadly. If somebody becomes a parent, that's probably one of the biggest shifts in somebody's life and their working pattern and how they earn and how they cope with these types of disruptions. So, I think actually something that I know Paul and I have spoken about in the past is how do we how do we position that in terms of parents thinking about how do they protect their children? And often that's for many of them will be often the point where they start engaging with risks for the first time. And actually I think that naturally opens up the door to the bigger question of well, if my child needed me to stop working, what happens to my income?

Children's cover can be a bit of a catalyst to that as well. Not because it's replacing income protection, but because it makes parents think about dependency, time off work, and actually the financial impact of caring. I think for a lot of parents, as myself, a fairly new parent, the thought of a child becoming ill emotionally is an incredible strain, but financially as well, that's going to be a huge impact. Your medical bills, its lost income, time off work, reduced hours, maybe stepping back from work entirely. And then that's where income protection can feel real. And we're not necessarily thinking income protection as the product, but it's other forms of protecting that income. It could be children's critical illness, it is critical illness. It's, you know, it's not just the phrase income protection as the product, it's much more broad than that. I think that's where a lot of modern protection conversations probably need to be extending towards.

Paul Roberts   08:27 – 11:43
The point you make about children's critical illness or income protection for adults or parents is an interesting one. And as we all know, an income protection plan is unique in the fact that once the policy is taken out, it's there for the duration, and can only stop when someone was to die or they stopped paying the premiums or it reaches the end of their term. So having children's critical illness cover linked onto an IP plan for a parent is possibly the best place to put it. Because if you link a child policy to an adult CIC policy and the parent has a full payment claim, that plan stops.

Now in income protection world, that doesn't work in the same way because the adult can make as many claims as they can or they need to. And if they've got children's cover, the children's cover stays as well. So, there's no limit, if you like, on the or no potential to lose, the children's cover because a parent has made a claim on their policy.

Now, if we put that forward into modern working practices, and with my three children all self-employed, you know, they all do different jobs, they have various different careers, pathways they're going on, but they will always work for themselves. So, they always have to provide for themselves when it comes to IP and
the protection policies, the portfolio of protection policies we're trying to create to create financial resilience. So, they need flexibility to be able to take those with them. And part of modern-day lifestyle and the way that we change the way we work is also the change in the way we protect ourselves and some of the clear messages within the Critical Thinking 26, ability to have conversations and for advisers to approach consumers - particularly those who are self-employed - in a way that's different to allow them to focus on what's most important to them. And for the adviser to put into place a portfolio that their client then can choose which parts of that portfolio they have today, which parts of that portfolio they might want to have into the future and become almost aspirational to have. And then when they're in the state to have that as part of the annual reviews that all, you know, most good advisers, all good advisers will take part in with their clients on an annual basis to bring these into the topic of conversation and tell them in advance that they want to speak to them about these, so they're prepared and ready for the conversation that they're going to have. Not just turn up one evening and say, look, I want to talk to you about this with no opportunity for the client or clients to reflect on what's valuable and important to them in the future.

We aren't going to go back into a world of everybody being massively employed and working in the way that we did in the past and we have to support and encourage the entrepreneurs in this world by putting into place the protection plans, the financial resilience plans they need around them to help them shape their futures.

Kimberley Dondo   11:44 – 12:05
And talking about those entrepreneurs, the research reveals that advisers find self-employment and mixed income roles the biggest barriers to securing suitable cover. So, what's the smartest way the market could reduce this friction without undermining robustness?

Gregor Sked   12:06 – 13:36
Good question, and I'm not surprised we're looking at self-employed individuals, because I would say self-employed individuals are the most at risk category of workers, if they are off sick, if they're injured and they can't do the job. And I think one of the biggest barriers that we see with self-employed clients isn't necessarily, it's not to do with the willingness to protect their income, that's certainly there. It's probably the uncertainty, you know. If you're self-employed, I think people often don't necessarily know when we're looking at the calculation for their income protections, what real income looks like after the fixed business costs, tax, National Insurance. So, it can be quite hard to visualise what actually needs to be protected.

The research that we're looking at, we see advisers want more flexibility for self-employed clients. I think in practice that means solutions that do recognise fixed costs, variable income, because that's what reflects the self-employed individual's work in practice. I know for a lot of self-employed people, income protection often only clicks when we do translate gross earnings into what actually lands in their pocket. Once you do that, then the question isn't then ‘can I afford it?’ It's ‘could I cope without it?’ And I think we're seeing about four/four and a half million people in the UK self-employed, a small, small proportion of that have got income protection. So, this is when we're thinking about opportunities, self-employed clients really are the, one of the most important group of category of workers that I think need to be made aware of the income protection solutions that are there.

Paul Roberts   13:37 – 15:27
When we were looking at the whole point about affordability and perception of value that a protection policy brings, in the past it's always been done on a premium basis. We're going to spend X amount of money on buying a protection product that you can put a monetary figure on that. But in the report, there's an emphasis on the percentage of a person's total income, and what percentage would they be prepared to invest in providing financial resilience for the future. And in the stats, you've got 12% say they’d invest about half of 1%, 18% say 1%, 13% say 2%, and 7% say 3%. Now 3% of an average person's income in the United Kingdom is actually quite a lot of money. So, when you look at the average premium that's been an average protection plan would cost in monetary terms and then compare that as a percentage figure of 3% or 2%, I think there would be tremendous surprise in how much you can actually buy for 2% of your annual income. And if you’ve got 20% saying they’re prepared to invest 2% or more of 5,000 consumers, that's quite a lot of people. So, it's really interesting to reflect on, for the advisers listening to this, do you talk in premiums, or do you talk in percentage of income? And how do you use that change of language to create opportunities for you to have meaningful protection conversations that you otherwise wouldn't have had if you'd have gone down the fixed monetary route rather than a percentage route?

Gregor Sked   15:28 - 15:48
That’s an interesting way looking at it because I suppose when you are thinking about your other forms of financial planning, if you think about your company pensions, for example, you will be having those conversations in the form of percentage, you pay X percentage into your pension every month. You know, can that conversation translate into the income protection space? I think it's really interesting.

Paul Roberts   15:49 – 18:18
And I wonder whether if we change the language and reframe that language around percentages we’ll get a much better outcome for consumers. One of the great opportunities for us all here is to, and I know Gregor mentioned it earlier on, was the way we view the children's critical illness element of a CIC plan at the moment. And historically, and I'm sure most people listening to this would view it as a smaller version of an adult plan that provides a lesser cash amount should one of the children or more than one child be diagnosed with one of the eligible conditions within a CIC plan. But what is it really doing? What it’s really doing is giving the parent or parents the ability to take time off work that they otherwise may not be able to do if they're employed. The only way that I understand it's possible to take time off work if you're employed after you've used up all your holiday allowance, unless you get special dispensation, is unpaid leave. If you're self-employed, you have no alternative but to take leave yourself if you can afford to do it. So are we looking at creating opportunities for a different use in the way that we, or the different framing of children's critical illness and view it as an adult parent income protection type plan that's used to give them the flexibility and financial resilience to take time off work for an extended period of time if they need to? Or do we continue to view it as a mini version of the adult plan and simply mirror it?

Our, my view, is that it's very much an adult income protection type plan that gives parents the ability to take time off work for an extended period of time should they need to. And I'm sure every parent listening to this, if something happens to your kids and you need to look after them, you'll do absolutely everything you can to do that. Whether you take paid leave or not. And you know what we're doing here is simply providing a financial comfort blanket, as one of my colleagues used to say, that you can wrap around the family so that when a parent or parents needs to take time off work to look after a seriously ill child or children, that they have the financial resilience to be able to do that.

Gregor Sked   18:17 – 19:15
And again, not diverting too much but we've talked a lot about opportunities in, you know, throughout the last few minutes of the podcast. I know that if you're an IFA, if you're a wealth adviser, you're probably going to be hearing a lot about the growing importance of protection in wealth planning because of recent changes with pensions and IHT, PPR, IPR, and you've probably been inundated with reading material and listening material that talks about we need to be thinking more about protection.

Yep, if you are a wealth adviser, there are a lot more solutions out there that are probably going to be further up the agenda. But like I said, that also opens up the door to talk about income protection, not necessarily directly with that client exactly themselves, but it could be their children, their grandchildren. When we've got to look through these different avenues that we're maybe now having conversations with about protection, and where does something like income protection or children's cover sit within the wider family? I think that's another opportunity worth exploring.

Paul Roberts   19:16 – 20:25
I think if we expand that one, Gregor, then when you're having a wealth portfolio. What we're doing here is we're having a wealth portfolio. We're just including a different product into that wealth portfolio in the same way as we would apply a different fund or different or change of fund or, you know, change in my attitude to risk would alter my perception on value or my investment risk moving forward. And what we're doing here is we're doing the same thing. We’re just putting an IP or a CIC plan in, if eligible, into your portfolio in the same way as you'd make a further investment into a different fund in a pension or a bond or whatever else you've got. So, it forms part of the language. And if we're used to using the language of portfolios, then we're simply adding another option within the portfolio for that wealth adviser or whatever type of adviser you are, to have that conversation about, well, we're not making a protection plan, we're adding to your wealth portfolio and financial resilience, and using all the language and terminology that you're familiar with, just adding in slightly different products into that range.

Gregor Sked   20:26 – 20:34
I suppose the question to leave with is, you know, is protection the missing asset class? Is it the asset class that we need to be thinking about in those portfolios?

Paul Roberts   20:35 – 20:44
Well, Gregor, that is an outstanding observation. And if that's what it takes to change adviser behaviours and innovate advice, then let's look at it as that.

Kimberley Dondo   20:45 – 21:23
Well, this was a very enlightening discussion. Thank you both for talking with me today. I think that our audience will definitely find it very useful. And for further resources, they can check out the CIExpert’s Critical Thinking 2026 report. Paul, you touched on a lot of it, but I know there's more that advisers can get out of it. So, it will be linked in the description bar and in the post for this podcast. But thank you so much for joining me today, Paul and Gregor.

Gregor Sked   21:24 - 21:24
Thank you.

Paul Roberts   21:25 - 21:26
Thank you very much, enjoyed it.