The aim is to help advisers ensure a better match between clients' requirements and the features offered by different protection products.
According to Defaqto's research, selecting appropriate income protection products is particularly complicated given the variation that exists between the different options available:
Short-term income protection
- 52% include unemployment cover - 8% include this automatically while the majority offer it as an option
- 44% of policies offer unemployment benefit on a standalone basis
- 53% of policies pay out for just 12 months maximum. The remaining policies offer one or more optional benefit payment terms - 16% offer 18 months and 19% offer 24 months
- 8% of income protection products have an optional redundancy cover benefit
- 86% of policies pay out for as long as the policyholder is sick or disabled, or until they retire - 20% of these policies also offer a limited benefit term option
- 14% of policies are limited benefit term products only
Defaqto's Star Ratings aim to help advisers understand the overall level of features and benefits offered by all income protection and short-term income protection products on the market. Taking a wide range of features and benefits into account, Defaqto gives each product a rating from 1 to 5 depending on how comprehensive they are.
Commenting, Ben Heffer, Defaqto's insight analyst for protection, said: "It is important for people to have appropriate protection in place for their needs and circumstances. From an adviser's perspective, they need to consider both short and long term income protection when advising clients on protection - after all, if a client has no income their whole financial plan will be undermined.
"However, due to their inherent complexity, it is often difficult for advisers to engage clients with these products. On the flip side, this presents an opportunity for advisers in terms of being able to help clients understand what products are suitable for their needs. Our research shows that long and short term income protection policies offer varying levels of cover, excesses, exclusions and additional features and benefits - so it can be difficult for advisers to navigate the market.
"Our Star Ratings for income protection products aim to support advisers by indicating the range and level of features and benefits that different policies provide, which in turn can support their recommendations and allow them to understand where a product sits within the wider market."
