Financial Protection Planning Trends

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Questions and Answers

What is the most common way to categorize different types of risks?

The most common way to categorize different types of risk is according to their severity of impact as well as their likelihood of occurrence.

The risk of a minor injury, such as a cut finger, falls into the category of high frequency and high impact.

False (B)

Which of these events are examples of high impact, low frequency events that insurance can help protect against?

  • A minor injury, such as a cut finger
  • Premature death (correct)
  • Periods of unemployment
  • Reaching retirement age

What are the two main events that have a high potential impact on individuals and their families?

<p>The two main events are death and disability.</p> Signup and view all the answers

What is the term commonly used to describe the range of insurance contracts that provide financial sums in the event of long-term illness, disability or death?

<p>Financial protection.</p> Signup and view all the answers

The British protection insurance industry is the third largest in the world in terms of sums insured in force.

<p>False (B)</p> Signup and view all the answers

What does the British Household Panel Study highlight about changes in British society since the 1950s?

<p>The study highlights the major widening of lifestyle options and the increasing complexity of people's lives due to more choice, greater affluence, and changed social attitudes.</p> Signup and view all the answers

Which of the following is NOT a factor that has contributed to changing attitudes towards insurance?

<p>The decline of consumerism (A)</p> Signup and view all the answers

According to the Royal London State of the Protection Nation survey, only 10% of those surveyed felt that everyone in employment should consider income protection.

<p>False (B)</p> Signup and view all the answers

What percentage of UK adults reported having no life assurance or other financial protection in the FCA's 2022 Financial Lives survey?

<p>53%</p> Signup and view all the answers

In 2018, Scottish Widows reported that 39% of self-employed workers have a life assurance policy, compared with 30% of full-time employees.

<p>False (B)</p> Signup and view all the answers

What was the main reason cited by respondents in the Drewberry 2021 survey for considering life insurance after the pandemic?

<p>Increased anxiety about the future (B)</p> Signup and view all the answers

What percentage of respondents in the 2011 Protection Review/ICM/Hannover Life Re Survey believed they had sufficient life assurance cover?

<p>90%</p> Signup and view all the answers

What are the two main events that have a high potential impact on individuals and their families, and should be top priorities for insurance-based solutions?

<p>The two main events that have a high potential impact on individuals and their families are death and disability.</p> Signup and view all the answers

What are the key financial commitments that protection policies need to cover?

<p>Protection policies need to cover key financial commitments such as mortgages, rent, bills, living expenses, debt repayments, and future income needs.</p> Signup and view all the answers

Historically, life assurance was primarily purchased by men as they were considered the 'breadwinners' in families.

<p>True (A)</p> Signup and view all the answers

What is the maxim commonly cited in the insurance industry regarding life assurance?

<p>Life assurance is sold, not bought. (A)</p> Signup and view all the answers

What are some of the major factors that have impacted the purchase of insurance protection?

<p>Some major factors influencing the demand for insurance protection include affordability, movements in the housing market, income per head, economic factors, and the presence of dependants.</p> Signup and view all the answers

What is the protection gap? How is it calculated?

<p>The protection gap represents the shortfall between the amount of financial protection needed by an individual or family to maintain their living standards after a death or disability, and the actual amount of life cover in place. It's calculated by subtracting the cover currently in force from the resources needed.</p> Signup and view all the answers

What are some of the factors that can influence consumers' demand for protection?

<p>Factors influencing consumer demand for protection include affordability, movements in the housing market, income levels, economic factors, and the presence of dependants.</p> Signup and view all the answers

What is the trend in the price of term assurance policies, and how has it affected demand?

<p>The price of term assurance policies has generally been declining. This reduction in price has led to an increase in the amount of cover purchased.</p> Signup and view all the answers

The protection gap is a concern for the government because it indicates that a large percentage of people lack adequate insurance coverage, which could lead to financial hardship for families of deceased or disabled individuals.

<p>True (A)</p> Signup and view all the answers

What are some of the reasons why people overestimate the cover they have in place?

<p>People might overestimate their insurance coverage because they may be unaware of the specific details of their policies, fail to update their cover as their needs change, or have incomplete or outdated information about their coverage.</p> Signup and view all the answers

What are some of the reasons why younger people, sometimes called 'millennials,' haven't purchased life assurance?

<p>Some reasons cited by millennials for not purchasing life assurance include a lack of perceived need, no dependants, no mortgage, sufficient cover from work, preferring to spend money elsewhere, not knowing how to buy it, and the cost of coverage.</p> Signup and view all the answers

What are some of the concerns consumers have regarding financial advisers, which can lead to a lack of trust in the financial services industry?

<p>Consumers are worried whether financial adviser services are genuinely unbiased, representing good value for money in terms of commission or fees, and providing a clear and comprehensive understanding of their options. These trust issues can prevent people from seeking financial advice.</p> Signup and view all the answers

What are some of the ways in which consumers research protection insurance?

<p>Consumers research protection insurance through channels such as over the phone, online via a personal computer, tablet, or smartphone, face-to-face with an adviser, and at their bank or building society.</p> Signup and view all the answers

How can the financial services industry build trust with consumers and successfully penetrate the protection needs market?

<p>Building trust requires a combined approach focusing on transparency, clear communication, unbiased advice, and the use of technology to deliver services and benefits efficiently. Gamifying health and fitness through apps linked to financial protection could be beneficial for engaging younger generations.</p> Signup and view all the answers

What are some of the major factors that drive the demand for life assurance products?

<p>Some major factors driving demand for life assurance include affordability, movements in the housing market, income per head, economic factors, and the presence of dependants.</p> Signup and view all the answers

How can insurers stimulate demand for protection products?

<p>Insurers can stimulate demand by offering innovative products, emphasizing affordability and value-added features, providing clear and understandable information, leveraging technology to enhance the customer experience, building strong relationships with customers, and engaging in effective marketing campaigns.</p> Signup and view all the answers

Flashcards

Manageable risk example

The risk that a casual passer-by will walk into a person's home and steal the cash sitting on the hall table.

Insurable risk example

The risk that a determined burglar might break in and steal valuables.

Frequency and Impact Matrix

A simple way to categorize events based on their impact and likelihood of occurring.

Low frequency, Low impact event

An infrequent, minor injury like a cut finger.

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High frequency, High impact event

Periods of unemployment, especially in certain jobs.

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Managing retirement risk

Saving enough money to generate an adequate income for after retirement.

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High impact, Low frequency event

Events like premature death or serious illness. They are rare but have high potential financial impact.

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Insurance as a solution

Pooling risk through insurance to finance the payment of benefits to those affected by high impact, low frequency events.

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Financial protection

The range of insurance contracts that provide financial sums in the event of long-term illness, disability or death.

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British protection insurance industry

The fourth largest insurance industry in the world in terms of sums insured.

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Linear life progression (post-war)

The assumption that life events like marriage, home ownership, having children, and retirement are predictable and occur at set times.

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Less predictable life events (today)

The greater complexity of modern lives due to increased choice, affluence, and changing social attitudes.

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British Household Panel Study

A study documenting a significant increase in life events experienced by people compared to previous generations.

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Traditional life progression (1950s)

The assumption that a young man would leave school, build a career, marry, buy a home, have children, and retire in a predictable sequence.

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Traditional financial protection (1950s)

The classic financial planning strategy for a young man in the 1950s, including mortgage protection, family income benefit, and permanent health insurance.

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Social changes influencing financial protection

Changes in attitudes to marriage, divorce, childrearing, careers, sexual equality, and technology transforming the dynamics of life.

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Industrial insurance sales force

A sales force that went door-to-door to collect premiums, fostering close relationships with customers.

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Change in premium collection methods

A shift from door-to-door collections to bank transfers for premium payments, reducing collection costs.

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Retail Distribution Review (RDR)

A review that changed the provision of investment advice within the financial services industry, impacting the availability of protection advice.

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Non-advised protection market

The market where consumers buy financial protection products directly from providers or online, often without professional advice.

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Level term assurance

The simplest type of life insurance, with a fixed death benefit for a set period.

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Non-advised sales decline (2022)

The percentage of new level term non-advised sales decreased due to the cost-of-living crisis.

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BeagleStreet.com

A website offering tools to help consumers select the right level of life insurance cover.

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Responsibilities of buying non-advised

The responsibilities placed on consumers when buying protection insurance without professional advice.

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UK welfare state

A welfare state that might lead people to believe the government will provide financial support in case of emergencies.

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Consumerism impact on insurance

The growth of consumerism leading to increased scrutiny of insurance practices and products.

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Overestimation of insurance cover

The increasing number of people overestimating the amount of life insurance they have.

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Protection gap

The gap between the amount of life insurance needed to maintain living standards and the actual amount of cover in place.

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Income protection gap

The estimated shortfall in income protection coverage needed to support people in the UK.

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Economic vulnerability of UK citizens

The challenge facing the insurance industry to address the financial vulnerability of many people in the UK.

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Affordability impact on insurance demand

The affordability of insurance influencing the amount of cover purchased by consumers.

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Housing market influence on protection

The impact of house prices and real estate transactions on the sales of life and critical illness insurance.

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Age and income correlations with protection

The correlation between age, income, and the amount of life insurance coverage sought.

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Defined contribution pension schemes

The trend towards defined contribution schemes and the impact on working lives and retirement planning.

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Lumpy lifestyle phenomenon

The potential for second families later in life extending the need for financial protection.

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Study Notes

  • Financial protection is crucial for mitigating personal financial risk, prioritizing death and disability.
  • Insurance addresses high-impact, low-frequency risks best, whereas manageable risks are best managed through other means.
  • A risk matrix (frequency vs. impact) categorizes events, showing insurance's effective role for rare, high-impact events.
  • UK life expectancy (2020-2022): male ~78.6 years, female ~82.6 years.
  • Financial protection covers long-term illness, disability, or death, and the UK protection insurance industry is the fourth largest globally.

  • Life events are increasingly complex and less predictable than in the post-war era.

  • Family models, attitudes towards work, and technology affect protection needs.

  • Historical life assurance was geared toward a simpler, linear lifestyle with men as breadwinners, with straightforward financial planning.

  • Industrial insurance sales forces provided direct contact to consumers, but also at a high price.

  • Distribution methods shifted to more cost-effective approaches.

  • The Retail Distribution Review (RDR) influenced financial advice access and commission.

  • Online and non-advised channels for protection grew, but saw a drop in 2022 due to the cost of living.

  • Some direct-to-consumer providers offered advising services.

  • Increased consumerism, welfare state attitudes, and technological developments have affected insurance attitudes.

  • Consumer surveys show low awareness of protection needs, with many believing the state will provide support.

  • Research shows that many consumers overestimate their protection cover and low understanding of various protection policies.

  • Cost and trust were key factors for consumers without protection.

  • Trust in financial advice was highlighted as a concern in various surveys. Online research and advisor choice have changed.

  • Affordability, housing market fluctuations, income, and dependents directly impact the demand for protection products.

  • Age and income often correlate to protection needs, reflecting higher financial commitments with increasing age and responsibilities.

  • The protection gap represents the difference between ideal cover and consumer's actual cover, calculated as national average income multiples.

  • UK life protection gap (estimated) is £2.4 trillion.

  • Income protection gap (estimated) is £200 billion annually. This gap is caused by the difference in average salaries and employer benefit offerings.

  • Increased living costs can lead to cancellation of protection products.

  • Price competition for life assurance, level term and critical illness decreased.

  • There are differing opinions on why the industry has not expanded its sales.

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