Income Protection: Inc Impact of COVID-19 - UK - April 2020
Overview
 
What you need to know 
The income protection market looked set for a period of strong growth in 2020. In particular, sales through independent advice channels were increasing rapidly, particularly those related to mortgage business. However, the COVID-19 outbreak and subsequent lockdown have stalled the housing market, which will heavily impact on income protection sales in the short term. Additionally, the anticipated COVID-19 recession will negatively affect household incomes and people’s willingness to consider a discretionary product like income protection.

The outbreak, however, is likely to have a positive impact in the long term. People are waking up to how vulnerable they are to a lengthy period off work, and this should lead to more considering cover in the future if the industry can tap into this sentiment in the right way. Additionally, new product developments are helping to serve the self-employed and the gig economy better – two groups who arguably have the most need for income protection. 

Key Issues Covered in this Report
●	The impact of COVID-19 on income protection sales and market dynamics. 
●	How COVID-19 will change consumer behaviour and attitudes towards income protection. 
●	Ownership of different types of protection insurance and appetite for income protection.
●	Consumer interest in different product features and purchasing priorities.

Products covered in this Report
This Report focuses on the market for long-term income protection (see below). It does not cover in detail short-term ASU policies that include cover for unemployment. However, limited term income protection policies are included. 

For the purposes of this Report, Mintel has used the following definitions: 

Income protection

Typically a long-term policy that is designed to replace a proportion of lost earnings in the event that the policyholder is unable to work due to sickness, accident or injury. Subject to certain conditions and level of cover, the insurer will pay, after a pre-agreed deferred period (eg four, eight, 13, 26, 52 weeks), a tax-free monthly benefit to the policyholder if they are too ill to work. The amount will usually be equivalent to between 50% and 65% (but can be up to 75%) of the individual’s gross earnings and is paid until the policyholder reaches their selected retirement age (usually between 50 and 70), or their recovery or death if these are sooner. Some lower cost policies will pay out for a set term (eg two to five years). Monthly premiums are determined via a detailed and personalised underwriting approach and are usually fixed for the term of the policy. The longer the deferred period selected, the lower the premium.

This type of cover is also known as permanent health insurance or family income benefit and can be held jointly. It should not be confused with ASU insurance (see below).

Accident, sickness and unemployment insurance

This is designed to provide cover for accidental death, disability and sickness, as well as unemployment, for a limited period. In the event of a claim, benefits are typically paid out on a monthly basis for up to a maximum of one or two years (unlike with an income protection policy, which is designed to pay out until the insured’s specified retirement age). As with other types of insurance, cover can be extended to a partner and/or children. This product is sometimes marketed as a form of short-term ‘income protection’.

Personal accident and sickness insurance

As above but excludes cover for redundancy.

Unemployment cover

Provides short-term cover in the event of redundancy or other involuntary unemployment.

Mortgage payment protection insurance

A short-term insurance policy specifically designed to cover the policyholder against the inability to make monthly mortgage repayments due to accident, sickness and/or unemployment. The policy will pay out for a fixed period, usually a maximum of 12 months.

Critical illness cover

A long-term policy designed to pay a lump sum to the policyholder on the diagnosis of certain life-threatening but not necessarily fatal conditions such as heart attack, stroke, certain cancers, multiple sclerosis, loss of limbs, etc. It can be bought on its own (ie as a standalone policy) or as an addition (ie as a ‘rider benefit’) to other types of insurance, notably term assurance, whole–of-life and endowment.

Life insurance

A long-term policy, which pays out a lump sum in the event of the policyholder’s death, with the purpose of protecting dependants against financial hardship. It is usually available on a single or joint life basis, with benefits including paying out on the diagnosis of a terminal illness. There are two main types of life insurance: term provides cover for a fixed term and only pays out if the policyholder dies within that term (providing cover for a set number of years and only pays out if the policyholder dies within that term) and whole-of-life (designed to cover the policyholder for the whole of their life, and as such guarantees always to pay out).