How lifestyle insurance has become widespread

Lifestyle insurance sounds like a positive, affirming financial product. It sounds aspirational.

For a specified premium, you can insure your clients’ lifestyle: their income, their home, their luxuries, the things they enjoy.

As a marketing phrase, this seems to work so much better than ‘income protection’, because it speaks to the fundamental desire of each person: we love the lifestyle we have, and we want to keep and improve it.

But is it more than a new badge on an old product – and is there more to the growing popularity of short-term income protection plans than just branding?

Alan Lakey, founder of the CI Expert, thinks this might be one marketing phrase too many: “As often happens, the insurance industry has got itself into a mess due to the payment protection insurance (PPI) scandal, and the plethora of names accorded to the various protection plans.

“Part of the problem is the use of acronyms, which tend to appear similar, and fail to indicate what the protection actually is.”

He cites: “PPI, MPPI IP, ASU – all these acronyms are in use and industry insiders know what they mean, yet the consumer neither knows nor cares. They simply want sick pay, mortgage payment insurance, unemployment insurance, and so on.

“Lifestyle insurance is another instance of a descriptive that suggests comprehensive coverage, yet may only provide income when ill or redundant.

“It is a variation on the existing mortgage protection payment insurance plans, which can provide limited income protection and limited redundancy protection.”

Paul Reed, co-founder of Cardiff-based advisory firm Vita, agrees: “The key thing is no matter the badge on the product, the consumer has to be number one and they have to be aware of what they are getting.

“Without advice, it is almost impossible for a consumer to understand the differences between ASU (accident, sickness and unemployment) or PPI or income protection. Different providers come out with new names for all sorts of products, but the customer needs to be able to make a proper decision based on clear features, clearly explained.”

This doesn’t sound like a ringing endorsement.

But others believe it is more than a marketing ploy. According to Peter Hamilton, head of retail propositions for Zurich, it is “gaining traction” as a product because of its flexibility and appeal for younger, and perhaps lower, earners.

He explains: “This new type of shorter-term income protection, with benefits payable from, say two to five years, is gaining traction for a number of reasons.

“It is cheaper, it allows enough time for most people to get back on their feet or make alternative arrangements, it is simpler and easier to understand, and can be linked more closely to expenditure rather than to definitions of salary.”

What it does

So what exactly is this new breed of lifestyle insurance? It is basically, as Andy Coles, development director at Lutine Insurance (part of Direct Group) explains, “a short-term income protection plan that is gaining in popularity as buyers do not wish to commit to long-term policies and the level of underwriting that is required in application”.

He points to figures from the latest Swiss Re report, which shows a significant change in sales of two-year short-term income protection products, the “lifestyle end of income protection”.

According to the figures from 2015-2016, there has been a 38.4 per cent increase in sales of the two-year product, compared with sales of ‘until retirement’ income protection products, which have seen an 11.3 per cent drop.

Table: Swiss Re report on growth of short-term insurance products

Product 2015 2016 % Change 2016/2015
IP to “retirement age” (excluding LPT)               66,167 58,661 -11.3
Income protection 1 year                 2,383 3,314 39.1
Income protection 2 year               33,271 46,041 38.4
Income protection 5 year                 2,360 1,948 -17.5
Income protection ‘other’                 3,121 7,850 151.5

Example of how lifestyle insurance works: 

By way of example, Aviva offers a form of lifestyle insurance which is a form of short-term income protection policy, available on its Income Protection+ product (called the limited payment term option).

It is available only through the advised market, and pays a benefit for up to 24 months for each claim. Julie Higman, income protection product manager for Aviva, outlines: “This can be made up of one claim of 24 months, or a number of smaller claims for the same condition, totalling 24 months.

“The customer can claim again for a further 24 months for the same condition, provided they return to work for at least six consecutive months. They can also claim for another condition for 24 months.”

Welcome addition to the toolkit

Many advisers and insurance intermediaries have welcomed the growing availability of this form of short-term policy.

The Source, a provider of general insurance products to the IFA and financial advice market, recently created a new panel of products for advisers, which includes a new short-term income replacement product from Maltese insurer Building Block.

Andrew Sajo, head of strategic relationships for The Source, said this would be popular with advisers, especially as it had carer cover and career support services as standard.

Emma Thomson, life office relationship manager for Lifesearch, comments: “In the UK, we have many short-term income protection plans available that can pay out for one, two or five years.

“Some income protection cover also continues to provide cover when the policyholder has a short career break.

“Some of these plans also do specifically cover bills and expenses, with clients listing what they need cover for.”

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