Let's Talk Income Protection

Short Term or Full Term IP: It’s Not Either/Or

• Income Protection Task Force • Season 3 • Episode 3

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0:00 | 26:34

Why do so many advisers default to short-term income protection… even when the client’s need clearly isn’t short-term?

In this episode of Let’s Talk Income Protection, Stevie and Matt unpack one of the most common patterns in protection conversations. Not from a product point of view, but from a behavioural one.

They explore why short-term often becomes the default, from fear of price and pushback to the temptation to secure an easier “yes”. More importantly, they show how to shift the conversation back to what really matters: how long the client actually needs their income for.

This isn’t about saying full-term is always right or short-term is wrong. It’s about making the decision deliberately, based on the client’s situation, not the adviser’s assumptions.

If you’ve ever found yourself leading with a shorter-term option without fully sense-checking the need, this episode will help you approach that decision with more clarity and confidence.

Links from today’s episode:

📣 For More Education, Collaboration and Insight:

IPTF Website
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IPTF on TikTok


Produced and edited by SEA Studios

Short Term Should Not Be Default

SPEAKER_00

So, are we saying short-term income protection is a bad thing? Right. So, it's not that short-term is a bad thing at all. And in fact, as you've rightly pointed out, some cover is always going to be preferable to non. We know that. But what this is about, it's about allowing that to become a default recommendation or part of a main recommendation when you clearly see there's a different need.

SPEAKER_01

Hello and welcome to Let's Talk Income Protection. Proper conversations and advice for advisors who want to get income protection right, not just tickerbox. And today we're looking at something that comes up all the time. Why short term ends up being the go-to even when the client's need clearly isn't short term. Because the reality is most people don't just need their income covered for a couple of years. They rely on it for decades. So this episode isn't about saying one's good or one's bad. It's about making sure the term actually matches what the client needs, not what feels easiest in the moment.

SPEAKER_00

Absolutely, Stevie. And I think it's really important to understand that when we do these types of episodes, what we're not trying to do is say that short term doesn't have its place. We all know short term is an ideal solution for many clients out there. What we're trying to do is avoid advisors simply defaulting to it because things get a little bit uncomfortable or maybe the client's a little bit resistant to the actual recommendation they're making. So this is about how we teach advisors the importance of recognizing that if a client's got that long-term income need, that's what they focus on, that's where the value's created, and that's what the recommendation reflects.

SPEAKER_01

So, Matt, has uh short-term actually become a bit of a default then for advisors? And if so, why why do you think that is?

SPEAKER_00

I think it's become a bit of a default for advisors because uh I think many advisors, what they do is when they're making those presentations, they recognize that in order to get the client at least some level of protection, they need to find something that the client feels comfortable with, a level of investment or a budget that feels appropriate. And the danger is what they tend to do is either offer a full-term recommendation first, and at the immediate sign of pushback, they default to a short term, or what they do is they offer a short-term one as a viable solution from the get-go. And it's not that, again, it's not that we're saying that short-term doesn't have it placed. Of course it does. It's a very viable solution for many customers out there. But if you know that your client needs a full-term recommendation, if you know that the client needs that income perpetually for as long as is is is possibly required for, typically up until retirement age, and that's assuming they continue to make those pension contributions and have a retirement income to fall back on, then that's what the product should look like. The problem is, is advisors are never really taught, coached, or trained on how to deal with that type of conversation to hold the line. And I believe that's something we're going to be looking at in the next episode. But unfortunately, as a result of that, when things become a little bit sticky, when advisors don't have true confidence or conviction in the need to push the pool the full-term solution, they do tend to default to a short-term option because in their mind they convince themselves, well, hey, something's better than nothing, and at least the client's going to get some form of protection.

SPEAKER_01

So are we saying short-term income protection is a bad thing? I mean, what's the issue here, Matt? That you know, they're covered, they might have sick, good sick pay, they might have lots of things. You know, surely getting something uh is better than uh nothing.

SPEAKER_00

What, you know, what's the risk of starting with short term? Right. So it's not that short term is a bad thing at all. And in fact, as you've rightly pointed out, some cover is always going to be preferable to none. We know that. But what this is about, it's about allowing that to become a default recommendation or part of a main recommendation when you clearly see there's a different need. Now, the way I often explain this to advisors when I'm doing my coaching activities, to say something like, Look, if you ask your client, would you be prepared to retire on two years worth of your salary, that's a great indicator of whether the client thinks that's sufficient to support them or not. And as we've rightly pointed out in this conversation, nobody here is sitting here saying someone shouldn't take cover and someone shouldn't take short-term cover. But what we are saying is that actually full-term cover, if that client has a lifelong income need, should always become the default recommendation. And short-term should only be assigned to the client if and when they've exhausted all of the other possibilities to try and get the client to see that need around that full-term income.

SPEAKER_01

Now, I think I'm gonna play my role here, be the Joe Blogs, you know. I I do need a bit more understanding on the, you know, on this short-term versus long-term, you know, duration. How would you explain duration to a client in simple terms, Matt?

SPEAKER_00

Okay, so essentially you've got various different types of benefit period. So we have plans that pay out for up to 12 months per claim, we have plans that pay out up to 24 months per claim, and we have plans that pay out up to 60 months, so it's five years per claim. And then you have what I would consider the prime option, which is the full-term cover. Now, in reality, when I explain it to clients, or even when I'm coaching advisors on how to do this with clients, what this comes down to is how long the client reasonably needs the income for. So if the conversation with the client is, okay, so how long do you need this income for? And the prime example is when you're doing alongside a mortgage recommendation. I think that's probably the easiest contextually for you to get your head around, having gone through this process yourself. When you're arranging a mortgage, you might be saying to someone, right, well, look, this is your level of affordability. This is the term we're looking at. And typically you might be looking at a term of, I don't know, let's call it 30 years. Well, 30 years is 360 consecutive months in which you're required to make a payment to your mortgage lender in order to ensure that you can stay in that home. So you as a client has this primary objective of becoming a homeowner, buying a house for you and your family. And if all I do is default to a plan that only gives you 12, 24, or even 60 months, I'm leaving you woefully exposed because there is a very real risk that if you find yourself out of work for a significant period of time, it's going to cause you significant financial detriment and harm. You may even lose your home. So as an advisor, recognizing that your goal, your primary objective is home ownership and to stay in the home, it would be somewhat irresponsible of me to default to a short-term plan if I recognized there was a much longer need for you to have a replacement income if and when you were unable to find yourself at work and able to generate an income for yourself. So I think the problem is it's not that short-term's a problem, as I said. And in some cases, it is the most viable solution. And often, if price becomes a very real challenge for many advisors, they should be looking to see how they can fit that within a reasonable budget to ensure the client has at least some level of replacement income. And when it's coupled alongside things like critical ones, you can look at slightly different variations of colour as to how you might make that work from an underwriting perspective. I think for a lot of clients, underwriting is the big issue here in that, you know, if if you're ineligible to take out um income protection or, you know, we can only make it work in a short-term option because for whatever reason a longer-term option would be prohibitively expensive for you. You know, proportionally, it'd be such a significant amount of your income set aside to cover the replacement income, it just wouldn't be viable for you as a household. Then of course, looking at a short-term option becomes viable, even if there's a full-term need. But naturally, we've got to explore the client's core financial needs first and anchor to that before we start offering these solutions. And I think the key message that I'm trying to say to you, if you were a client and I said to you about term options, it'd be a case of look, if you think you can survive on one, two or five years worth of income, we can absolutely explore that. But if that doesn't feel realistic to you, if you don't think that that amount of ongoing income would be sufficient for you to achieve your financial objectives, stay in your home, achieve the goal, support yourself and your family financially, we need to be considering how long you need that income for. And I don't believe most people would be able to survive on two years' worth of income. It's like if I said to you, would you retire tomorrow and two years worth of your income? And if the answer is no, we need to be considering these full-term options.

When Short Term Actually Makes Sense

SPEAKER_01

Okay, cool. We're gonna come on to that uh uh in in a little bit, but let's let's talk, um, drill down a bit more on the the short-term option. You know, obviously there are times where you know it's better than it's better than nothing. But when does short-term generally you know make sense, Matt? What what are the scenarios where that's gonna be the option?

SPEAKER_00

Well, like I say, so the default position in theory for most advisors, if there's that long-term income lead, should be a full-term product. And thereafter, you've got a variety of solutions. You've got so many dials you can turn. So whether that be the deferred period, so how long before the plan actually kicks in from when you find yourself out of work, or you know, you could look at the benefit level being adjusted to try and bring that premium into a level that feels a bit more comfortable or acceptable to the client. And you've even got things like age-costed options, where it's still a full-term benefit, but what happens is you get a discounted premium up front, and that premium starts to increase as the years go by as you get older. Now, that's not to say that that's the best solution for everybody. And in fact, in many cases, the reason the short-term plan becomes the best option is because where that client's got a concern about those rising premiums in which is needed to retain that full-term benefit, because they can't genuinely afford to invest in a full-term plan with guaranteed premiums, then naturally a conversation around short-term benefit becomes viable because you're trying to still find a level of investment and benefit that kind of works for the client. But ultimately, everything's a compromise, right? Because the minute you start looking at taking out a short-term plan and you're making those short-term savings on the premiums you need to pay each month, you're making long-term compromises in terms of your level of financial security and resilience moving forward. So I think what advisors need to be considerate of and cognizant of is this conversation around compromise. So helping the client understand that everything you do is a trade-off. So, for example, if you're not able or confident to invest in a full-term plan with those fixed premiums, you've got these options. One is to look at an age-costed option. But of course, the compromise there is that the premiums will continue to go up. And if you found yourself unwell between now and when you plan on replacing that plan before the premiums become prohibitively expensive, it could be difficult for you to replace that plan, which could leave you financially exposed. Or you go for a short-term option, which naturally is significantly more cost-effective than the one I'm recommending. But of course, the compromise with that is that you might find yourself running out of income if you're off for longer than deferred period that the plan covers you for. Sorry, for the for the claim period that the plan covers you for. So this is just about having an open conversation with the client, I think, and not naturally defaulting to a short-term plan. Defaulting to the long-term plan and then using the short-term plan when it becomes most appropriate, which is the kind of scenarios I've just explained to you where it is literally prohibitive. There is underwriting issues, the client genuinely can't afford a full-term plan and are concerned about the risk of rising premiums. Then at that point, a short-term plan by and large becomes your best option. Because as you rightly pointed out, some cover is going to be better than nothing.

SPEAKER_01

But it's also a case of, you know, it will be a case-by-case basis. And it might be that, you know, regular reviews for this particular client is something that needs to happen. You know, it might just be a short-term thing, get something in place now, but just make sure the care's there, the support's there in a month's time rather than say six to a year's month's time or, you know, for a regular review.

SPEAKER_00

No, no, it's a very valid point. And I think what what you've touched on there is so crucial, though, which is if you're going to do those things, you've got to have the follow-up support. Because the danger is you always have this set and forget attitude, which is like, oh, the client took some cover. Even if mentally you've earmarked the fact that actually, yes, we've done this short-term in the meantime, just to get some cover in place, you've got to make sure you put the flags in to pick that conversation back up so that you don't leave the client in a negative situation. The real danger for me with all of this, by the way, is that rather than advisors actually taking control of the conversation, explaining the consequences of a decision to go with a short-term option, what they're doing is looking for, in the nicest possible way, a bit of a path of least resistance. And it's because that conversation is naturally feeling a little bit uncomfortable. But rather than recognizing, but that's the value of giving the advice, and actually it's not about being uncomfortable or comfortable, about about the risk reality that client's facing. We've got to remember that the minute we start making those compromises for the client by defaulting to these types of plans, because it feels uncomfortable for us, we could be putting them in harm's way unintentionally, without the client actually agreeing to that or understanding the consequences to those choices. So the real point I'm trying to make here is not that short-term plans don't have a place or that they don't benefit clients, but actually, if it's been put in front of the client as a viable option early on in the conversation, without really explaining the consequences of risks, or the client agreeing that that's something they're prepared to take on, if it's presented as a viable device option, client's going to take it because who wants to spend more money than they have to? But the danger there is that we're ultimately making that risk decision on behalf of the client that could lead to bad outcomes because we're uncomfortable having that conversation. Does that make sense? 100%.

SPEAKER_01

We've covered now that, you know, the need and the value of short-term when it's actually a viable solution. But what's really going on, you know, you've you've just touched about on this a little bit, Matt, when advisors default to the shorter option when it's not really what they need.

SPEAKER_00

Yeah, that's usually advisor confidence, if I'm being really honest with you, which is, you know, there is this mindset that a lot of advisors have, which is actually if I present the client with a selection of options, the one that seems reasonable is the one they're most likely to do. You know, we always talked about this concept of the gold, silver, bronze package, and how psychologically 99% of people end up sitting on the silver package because, well, why would you take the gold one when there's something that's viable that's more cost-effective for you? You don't want to spend money, they don't have to. But then, of course, you don't want to take the cheapest option because you don't want to seem cheap. And that's the generally the psychological practice that clients will go through. But the danger here is that what's happening is the advisor through a lack of confidence in their own advice, through a lack of conviction in the need for that long-term income, and the lack of ability that they feel to challenge the client's decision-making process or anchor that value for the client, they tend to do this because what they see is being a simple path. They're opening a door for the client to walk through, which, yes, of course, is going to lead to the client having some protection, which again, I can't fault that. I want clients to be protected in the UK. We need more clients taking things like income protection. But by putting that door there in the first place and making it a viable option to walk through, they're unfortunately leading to this fact that clients will walk through it because, as I said earlier, no one wants to spend money, they don't have to. But but more, more probably psychologically deep than that, we're actually saying to the client, this is an acceptable solution for you. Whereas we know it's not, we know they don't need it, but because of our fear of resistance or fear of the client pushing back, we're saying, as advisors, that's an acceptable solution for you in your circumstances by presenting it at the outset.

Better Questions Build Better Advice

SPEAKER_01

Matt, it feels like there's a couple of touch points here around advisors and about being able to support their clients as best as possible. Is there potentially a skills and like products if I'm thinking about using the right word here? And then separately, you know, it is around this mindset, there's confidence and these, you know, almost, you know, I don't want to say, you know, we say advice, but it's all it is a little bit, you know, it can feel a bit salesy, and I think a lot of terms people maybe do use the word sales a bit. Um, but just touching on that first point, is it a case where it might be like a new advisor or someone who's in it, been in business for a while? Do they even need to understand the products better? Is there things that they need to do to improve their ability? Or, you know, is there a base level that people generally have anyway?

SPEAKER_00

That's a very good question. It's a very good question. And I know you thought that sometimes the questions you ask can be a little bit Joe blog stupid questions, but that's actually a very, very solid question. And I think this comes down to the level of training we have in the industry. Now, the facts are, and this is the danger we have, the facts are that advisors writing income protection business is a huge win for the industry. It's a huge win for the industry because it's a comprehensive plan. Naturally, it covers significantly more conditions than your typical, say, critical on this plan. And again, I'm not comparing the two, I'm simply saying that getting more people's income protected is always going to be a great outcome for the industry and the consumers that have that protection. The danger point is that, as you rightly said, advisors maybe don't understand the consequences of recommending a short-term plan versus a full-term plan. And that actually, when we look at the statistics around the number of people who end up off work for, say, more than two years and the likelihood that they will inevitably remain off work forevermore after that, and the number of people that we've currently got off long-term sick in the UK, suddenly the stark reality is that a short-term plan is woefully insufficient for your average person, right? So I think what this is about from a skills perspective, rather than understanding the products better, is understanding the consequences of the decisions, but more importantly, asking the right questions to the customer. So rather than us feeling as advisors that we've got to impose these recommendations on clients or, as you said, become salesy or pitch them to clients, instead, what we should be doing is focusing on what the client actually needs and asking the right questions of them. So, for example, if I was to ask you a question around, okay, Stevie, what's the minimum level of income you need each month to maintain a lifestyle you're comfortable with? Okay, and let's say, for example, you're unable to go to work and you can't generate that income, how long would you need that income to continue for for you to maintain a lifestyle that you're comfortable with? So I'm starting to ask you probing questions that lead you to come up with conclusions that allow me to recommend a product that's most suitable for you. So rather than me driving the agenda or trying to convince or persuade you you need this income, I'm gonna ask you logic-based questions because the danger is that we make it an emotional-based conversation, an emotional-based decision. It's persuasive, and then you become resistant to that. So instead, I'm gonna ask you a logic-based question. So I talk a lot in my coaching around this income stress test concept that you can use. You know, and I can say to you, right, Stevie, I can see you have a mortgage and that mortgage is for the next 25 years. So are your income sources guaranteed even when you can't work for the next 25 years, for example? And you're gonna go, no. And I'm gonna say, in that case, that's something you really need to address because you've got a liability here and you've got expenses that are coming out every single month. So when your income stops, we need to make sure that that carries on. Otherwise, you're gonna find yourself in financial difficulty and that could be very detrimental. Does that make sense? And you're gonna say yes, and say, okay, so I will look at an option that gives you the essential income that you need for the next 25 years as a bare minimum, right? And that's not me pitching a product to you. It's about you and I concluding that that's the solution that you need based on the very real risks that you face, pertinent and linked to the goals that you've got or the assets or the liabilities that you've also took on as an individual. So this is about us as advisors, not trying to impose our concerns and fears and recommendations onto clients or products onto clients, but actually using the right fact-finding, knowing your customer techniques and understanding someone's situation, so that we can naturally guide them towards solutions and they self-conclude that that's the best outcome for them.

SPEAKER_01

Okay, Matt, that's fantastic. Yeah, yeah. That's going back to some of the points that we've said already throughout this uh it's throughout season three about this mindset and about anchoring everything around the customer's needs and plainly showing that your income needs to be protected. You're about to get a mortgage, uh, hopefully, and that needs to be paid. And you could explain it in a very easy way that does, as you said, doesn't feel salesy, it's very honest and said and explaining essentially uh an issue that I think the whole of most of the UK have, which is around just around awareness about uh income protection and critical illness and and protection in general. So it is on advisors to do a lot of this education to clients, you know, they're probably starting from zero, you know, they probably know about general insurance, about you know, when you when you die, or when you get a you know, a really bad uh illness or you know, cancer, things like that. So it is on the it is on the advisor to help educate, and that's where I was talking about my second point in this question about about sort of mindset and about their essentially their sort of soft skills to be able to uh guide these conversations. What can people do to in imp improve that, you know? Like what thing could they do today, or you know, or after after listening to this podcast when you're on a walk and start to practice or start to think about a plan of four?

SPEAKER_00

That's a brilliant question. And I think the simplest thing to do is to try and formulate the the simplest way in which you can explain someone's reliance on income. Now, I always used to love the expression income and outcome are inextricably linked. So income and outcome have a direct relationship with one another. There's a direct correlation between the two. That is, if you've got income, things are pretty good. As in this idea that you know you go out there and sell a third of your life in the pursuit of income. Why? Not because you want to, but because you have to. No one's a charity here. You know, we're doing it because we've got these bills, these goals, these things that we want to pay for in life. And so naturally, it it's very reliant on the income sources. Now, the one thing I would say is, and this is really cool, the IPTF have actually recently done a phenomenal consumer video, and it's at the minute is only available for advisors to use in those conversations. But what it does, it has this beautiful explanation around our reliance on our income, which allows us to kind of do this connection with why you'd want a full-term plan, for example, because it's based on this concept of like a Jenga town. You've got all these different things on the it is exactly, and I'm saying, if anything, if all you do is just go and access that on the IPTF website resource, just use it in your conversations, play it to your clients, show them the relationship between income and how it's the foundation on which they build all their life goals and all the things they care about. Because then having a conversation around how to educate. Educate them on how they can safeguard those things or protect that income no longer becomes a sales pitch, it becomes an educational guidance conversation. It's it adds value, which means advisors then can move away from this fear that they're pushing a full-term product onto a client and it becomes a sales pitch, which is why they often default unnecessarily to short term, to we're having a genuine conversation around what matters to you, how we safeguard it. And here's an explanation that I think might be helpful in you understanding your reliance on your income is the foundation of everything you want to do, which is why I'm recommending this plan over here. That's the that's the value connection. It's the connecting the dots for the client rather than it being a sales pitch. So if advisors are fearful that they sound like they're being salesy, if they're concerned that this is why they do what they do because they don't want to come across as being a little bit pushy or persuasive, that is a great resource. IPTF website, Iptf.uk, go and access that video because it's phenomenal.

SPEAKER_01

Yes, the protect your everyday, the building blocks of life animation can be found under the advisor tools uh there. Yeah, use that with your with your clients to help explain the need for uh a building block, that that foundation of income, uh, along with several other amazing advisor tools on there as well. Um it's a very powerful video that is. I found very powerful. Very powerful. Okay, Matt, let's start wrapping things up now. So what's we we've talked about you know a few tips there. That was fantastic. But what about one simple shift advisors can make straight away to improve their advice when short term isn't the only option for clients? Can I give a a couple? Can I give two?

Two Simple Shifts And Closing

SPEAKER_00

Go on then. Um just because I like it. Thanks, mate. Um, the first thing I would do, advisors, is I would start to incorporate something like an income stress test in your advice process. Because what the income stress test is going to inevitably do is demonstrate and highlight the need for ongoing income beyond the short-term benefit. And in doing so, what you're doing is you're creating this need anchor with the client that means when you do come to your recommendations, you have the ability to demonstrate why you've recommended a full-term plan and they're cognizant of the fact and they accept that that's a real risk that they've got to cover off. The second thing I'd probably do above all else is and ignoring all the tips I've give you for avoiding defaulting and presenting short-term options at outset. What I would also do is I I always used to share my sourcing screen with clients because I wanted to be as transparent as I possibly could. And so you can share your screen with your clients if you're doing it on Teams, if you're face to face, you can do the same thing. A little bit harder over the telephone, but still nonetheless, you can do something similar, which is when you're scrolling down through the results, you can bypass the short-term plans and explain to clients those plans in particular aren't appropriate for you because you need an income that continues beyond what they do. So those are those aren't for typically clients like you, therefore, ones that don't need a long-term income and could survive on a couple of years. In your case, as we've discussed, you need a full-term income. So these are the types of plans we need to be considering, and then you move down into the full-term options. And what it does, it just naturally manages the expectations and sets the benchmark that the conversation is going to be geared around that long-term income need rather than just naturally defaulting to a short-term recommendation.

SPEAKER_01

Fantastic, Matt. Okay, let's see if I now understand everything correctly. So short term has a place, it can be the right outcome, but it shouldn't be the starting point. Uh shouldn't be, you know, the default starting point. If the client needs income long term, then that's where we start. And then we have to work back from there if we need to. How's that sound? Ski downhill. Ski downhill. That sounds perfect for amazing. Okay, thanks, Matt. So in the next episode, we will get into what happens when you actually hold that recommendation and the client pushes back on cost. Uh, in other IPTF news, have you seen Aerie, the IPTF's AI assistant, dish out advice on wisdom Wednesdays? If not, do follow the IPTF now on LinkedIn. And finally, if you found this useful, a quick follow or review wherever you listen really helps, or even better, share it with your advisor colleagues and friends. Okay, that's it from us.

SPEAKER_00

Catch you next time. Thanks, guys. Hopefully it's been a fantastic episode and very useful for you all. See you soon.

SPEAKER_01

Let's talk income protection is produced by C Studios.