Articles - Protection is back


The recent rise in the rate of inflation is causing huge problems for families all over the UK. Many are worried about how they are going to make ends meeting; basics such as heating and food are taking up ever-higher proportions of household incomes. The situation is only going to get worse; central banks worldwide are raising interest rates as they try to dampen down the rocketing rates of inflation. The costs of these higher interest rates are being pushed onto consumers as well, with higher mortgage payments and increased costs of consumer goods.

 By Tom Murray Head of Product Strategy, LifePlus Solutions at Majesco

 And there seems to be no sign of this upward pressure on prices stopping. 

 As global tensions rise, the continuing shortages and problems with supply chains will mean that significant levels of inflation are here with us for the medium term.

 This leads to a catch-22 situation for most people. On the one hand, they are struggling to make ends meet for their day to day living costs. On the other, they need to save in order to safeguard themselves financially for the future as it is so uncertain. The struggle to do this on a low or medium income is a huge challenge; a challenge that was not there over recent decades of low interest rates and minimal inflation. Now times have changed and people do not have the excess money to put aside in order to provide themselves with a significant rainy day fund. With prices this high for everyday living, the ability to save for the future is very low.

 It is not surprising that, given these conditions, many people are feeling very vulnerable and uncertain about their financial future. They believe there is a high risk that an unforeseen event will cause them severe, possible catastrophic financial problems. They are looking for solutions that are affordable yet robust enough to deliver the peace of mind they crave.

 This is where the life and pensions industry can help. In the recent era of high earning and low interest rates, living standards rose worldwide and people invested for their own future, building up a portfolio of assets to fall back on. Now it is more difficult to do that and the cheaper approach of protecting against risk by pooling it is becoming popular again. Protection products are suddenly back in fashion.

 The origins of the insurance business lay in this approach, the pooling of risk to enable a large group to protect themselves by insuring against financial catastrophe. By pooling the risk, a large enough fund could be amassed from all the small contributions in order to support those for whom the risk became a reality. It is a far cheaper way to get protection against an unforeseen negative event than by trying to build the financial reserves to withstand it oneself.

 Protection products are a simpler and cheaper way for families to ensure their future financial well-being. It is time for these products to be reinvigorated, as they are likely to play a much bigger role in peoples’ financial plans over the coming decade. Simple products, that were formerly often sold door-to-door, can now be easily retailed to customers digitally, using social media to provide the marketing penetration that was traditionally done by word of mouth. This reduces the overhead and makes the products ultimately cheaper for the consumer.

 Low-cost and with low-overheads, these products are far more affordable for those who are worried about the future but unable to afford to save for it. Financial advisers and life companies need to go back to basics and focus on producing versions of these products that meet the needs of the 21st century. Bringing protection products back as a key part of their offering is one way to meet the need of a growing market; households under financial pressure need to see an affordable way to protect themselves financially.

 Simple products with easily understood benefits such as term life, income protection and hospital cash are low-cost ways to allow families to protect themselves against the worst. In the current economic climate, these type of products can really deliver security to those on lower incomes. People just need to be made aware of the benefits these products can deliver to the average worker.

 For protection products, the spotlight is back on.

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