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November 29, 2017 | 16:00 | Dubai
Zurich Insurance Group (Zurich), in collaboration with the Smith School of Enterprise and the Environment at the University of Oxford, has published a new report, ‘Embracing the income protection gaps challenge: options and solutions’.
An income gap is the reduction in household income as a consequence of the loss or incapacitation of an adult wage earner upon whom the household relies, taking all public and private income replacement in to account.
The global insurer encourages consumers to ask the question, if you lost your ability to work, how long would your savings last?
Regionally 75% of respondents had no provision in place to protect the loss of income through illness, incapacity or premature death. Of those that do, 72% percent received this coverage from their employer. Globally, 6 out of 10 respondents said that their savings would last no more than 6 months and 1 in 5 said that their savings would last less than one month.
Jason Waldron, SME Segment Specialist at Zurich International Life: “The gap only widens as savings are used on ongoing treatment, relocation costs, modifying the family home and having to pay the rent or mortgage. Income protection is vital, as your finances remain ‘abled’, at a time when you are not.”
With more than a quarter of the workforce becoming unable to work at some point during their working lifetime, Zurich outlines practical recommendations to address critical issues and gives insights into how governments, employers, insurers, intermediaries and individuals can work together to close income protection gaps (IPGs).
For expats living in the UAE, there is no state provision to support those that suffer a loss of income due to illness, disability or premature death. Consequently, the financial risk shifts to the individual or their employer.
As a Global Insurer Zurich has a responsibility to increase awareness of income protection gaps
For employers that provide income protection for employees, the benefits can be attractive. The Zurich report showed that 6 out of 10 employees would rather have a good benefit package than just an increase in salary. Therefore employers have a great opportunity to retain and attract talent through the use of income protection schemes. Zurich’s scheme pays up to 80% of income until age 65 if a claimant suffers a disability that prevents them from working. The degree of disability that triggers the payment is flexible, much like taking an individual policy with Zurich, an applicant starts with a blank canvas and builds a tailor-made solution.
Income protection can also tackle the global phenomenon of presenteeism, when sick employees come to work through fear of income loss, underperforming and possibly spreading contagion. The estimated cost for employers in the US alone is estimated at USD 150bn per year.
For individuals Zurich recommends contextualizing income protection within the wider household spending. For example, households typically maintain a credit card with an annual subscription cost. For the same subscription cost, households could purchase income protection insurance that provides more valuable benefits than that of the credit card.
Waldron continues; “It’s appropriate to frame the consequences of our financial decisions. For instance, before upgrading a TV package consider securing an income for life for the same money.”
Demand for income protection insurance is increasing exponentially as people are living and working longer. Although this is positive, it increases the likelihood that at some point in our career we may become unable to work due to a disability.
Reducing the income protection gap can save families from financial ruin, create advantages for employers and support governments in implementing regulation.