As the recession tightens its grip, employers are looking for areas to cut back. With pay freezes across the board, competitive benefits packages provide a good way to save money, manage absenteeism and help retain talent.
But benefits packages are long overdue for review. Typically, companies will offer life insurance that pays four times your salary, but just one in 10 employees have a policy to protect their income should they be unable to work due to illness or injury.
And, for the most part, those with both life cover and income protection are the senior executives who need it least. In reality, employees are three times more likely to be on long-term sick leave than they are to die.
So, financially, businesses are in for a rude surprise. If even a handful of their ’rank and file’ employees are on long term sick and don’t have income protection, employers will either have a huge payout as they continue to keep sick employees on the payroll, or they risk a dive in staff morale as they revert to state benefits.
Most employers don’t understand the risks and this mismatch between what staff need to be protected for and the financial protection they offer. So, benefits packages are out of balance.
As an industry, we have been poor at making information about our products accessible, which has created confusion, making brokers’ jobs increasingly difficult
One of the barriers brokers face in selling income protection for all employees is the perceived high cost. But, providing cover for all staff needn’t cost more.
By reducing the amount of life insurance offered, for example to one times salary life cover and switching spend to insure more employees with income protection, employers can rebalance benefits ratios without incurring additional costs.
This rebalancing is more reflective of people’s lives today and the risks they face. It also helps to maintain staff morale and loyalty as they see their employers as supportive and considerate.
As an industry, we have been poor at making information about our products accessible, which has created confusion, making brokers’ jobs increasingly difficult. That’s why this month we shall be launching an awareness raising campaign to highlight the benefits that income protection from employers can bring to their staff and their business.
Employees need to understand what income protection is and they need to have a back-up plan if they are unable to work for more than six months.
And employers need to understand the role they can play in protecting their staff when they are ill or injured. The workplace is best placed to provide income protection because it makes it more affordable, as group rates are lower than individual rates; more available as some people would be refused cover if buying directly; and accessible as few people have IFAs from whom to purchase individual cover.
Amongst employers income protection should be seen as a way to manage absence, reduce costs and increase employee morale and productivity. Life insurance certainly has a value, for some people, but employee benefits packages need to be rebalanced to offer the protection that employees actually need. I believe that is a combination of both life cover and income protection.
Our campaign isn’t about brand awareness. We want the rest of the industry to get behind us to raise the profile of this important issue one in five people have no back-up plan to support themselves and their families financially if they were unable to work due to illness or injury, according to research from ICM, commissioned by The Guardian.
We’re delighted to see that our competitors are realising the importance of income protection awareness and are starting to advertise. With multiple insurers offering similar products, it’s indicative that it’s the right solution for employers, and it provides additional choice for employees.
As an industry, we have a role to play in simplifying the way we describe our products and services.
While we might spend our time dealing with employers, it’s just as important to communicate what benefits mean on a personal level to generate demand from the shop floor. By rallying employees to ask their employers for better balanced benefits, we will go some way to growing the market as a whole.
And, extending the reach of income protection needn’t cost employers any more than they are already paying they could even save money.