What if a P60 was developed to show not only earnings but also State and employer benefit provision?
The most common question I am asked about life assurance by people outside of the protection industry is how much cover should I have? This is asked with a certain level of engagement that quickly dissipates with the answer "that depends on your personal circumstances". You can see in people’s eyes a look that says I was only asking to make polite conversation, I’m not actually interested in a lecture and I’m certainly not going to discuss my personal finances here and now with you. To be honest, nor do I want that conversation at that point.
So is there an easy answer? When I first joined the industry a couple of decades back, the starting point for some direct sales forces was stating you needed ten times income. This glib response was a reasonable starting point for a discussion. Big enough to jolt people into taking the conversation seriously and not so large that it immediately sounds like an oversell. It was within the realms of reality. The ten times came from a simple assumption that with interest rates at around 10%, the lump sum could replace your income. With today’s interest rates at a 20 of that level the same logic gives a starting point of a sum assured of two hundred times salary! Patently daft.
I’m not a protection adviser and don’t get confronted by this situation on a daily basis, however I believe there is a solution to provide consumers with a way of having meaningful engagement on the financial risks they are exposed to, by using independent, trusted information that is already available, albeit currently in different places. Surely that must be a benefit for all who advise on protection?
While accepting that everyone is an individual, there is still some fundamental information that forms the foundation of maintaining a person’s financial wellbeing, that’s insurance. Beyond that we have personal hopes and dreams, in my mind that’s financial planning.
So sticking to insurance, we need to understand the current situation. What the risks are and what protection is already in place to identify the gaps.
A person’s current financial situation is readily available from wage slips, or their annual P60. A controversial point I accept, but while we concentrate on insurance I would suggest that the knowledge of an individual’s debts and outgoings at this point is not the priority if the fundamental exercise is to identify what risks to their current situation they run, as it’s this income flow that supports their current lifestyle.
Outside of what personal cover they already have in place, the protection they have against interruption to this income flow comes fundamentally from two places, the State and their employer. This is where I think there is a big opportunity for consumer understanding of the financial risks they run.
What if a P60 was developed to show not only earnings but also State and employer provision? The consumer can then alone or preferably with the help of an adviser, understand the amount of self insurance they are currently undertaking and make an informed decision as to whether they are comfortable in their current position, or feel the need to investigate alternatives.
The required information already exists and is published, but is not necessarily easily accessible.
Many State benefits are means tested but the levels of incapacity, unemployment and death grant are a very good indicator of what support is realistically available. Making this visible on a P60 would seem to be a simple change to passive wording, and support the Government’s stated aim of making Society more resilient through encouraging those able to do so to take more responsibility for themselves.
Companies that provide employee benefits often bemoan the lack of value placed on them by employees, who tend to focus primarily on the salary and maybe nowadays a little more on any pension provision. Death in service, income protection/sickness/incapacity benefits and, for the few, private medical insurance benefits may become more valued if placed on the P60. Companies have all this data at an individual level.
When discussing this with colleagues I have had a few challenges. "What about the self-employed?" A fair comment, it won’t work for everyone but if it does for a large part of the population isn’t it still worth doing? "The Government won’t want people to understand the very low level of support it provides". Well they are saying publically they do, so let’s challenge. "It will add more administrative burden to small employers". I agree this has to be avoided but if the small employer doesn’t provide employee benefits it’s only the State information in the form of standard text that needs to be added, which sounds very simple, and if they do provide benefits I’d expect them to want to promote them.
So my grand idea is for a P60 that says what you have earned in the last year and what cover you have in place if you were to become unable to work through incapacity, unemployment or death. Split by State and employer provision. Ideally also showing the gap between income and protection but accepting that might be a step too far for a simple statement.
Though it is far from a fully thought through concept, is this something that you would support? Do you believe it would it help engage consumers with their financial health? Is it a concept worth the industry progressing?