High-income earners like extra protection

It’s always fascinating to analyse client trends. You can learn so much and develop strategies around what you find and tailor your services to what clients want.

In the risk outsourcing business, it can sometimes be a challenge when you present clients with the sums that will stipulate what they need to spend to protect what they have worked so hard to build.

However, I recently stumbled across a group that don’t necessarily require personal insurance cover but like to take it out anyway.

During a recent review of insurance cover, we analysed the personal insurance plans of 20 high-income earners. They had an average annual salary of $520,000, and we found they were well covered for life, trauma and total and permanent disability (TPD), and only minimally covered for income protection.

The review revealed the following averages:

n Income average: $521,000

n Income protection: $86,000*

n Trauma: $194,000

n Life: $859,000

n TPD: $951,000

The $86,000 average for income protection was surprising, but upon further investigation we found two reasons for it.

First, just under half took income protection through their employer and second, income protection is generally capped at around $200,000, especially as bonuses are difficult to calculate over time and then to insure.

*In fact, the remaining 11 who had no cover through their employer averaged $195,000 for income protection.

There were no surprises with the average of $194,000 level of trauma cover reported — it’s generally expensive, and our business model stipulates that cover for servicing debt is usually for a few years, as most events are often short to medium term.

Analysing life and TPD cover really depended on the make-up of the clients’ salary and assets.

When you crunch the numbers, personal insurance isn’t necessary for many high-income earners. But they view it as good value and as a benefit they can easily afford. When you earn over $500,000 you don’t mind spending $15,000 on insurance premiums — the percentage of total income spent on insurance is very small.

A common driver for high-income earners taking out personal insurance is the protection of assets.

Although some assets could be readily disposed of, many want to hold on to what they have worked so hard to acquire. Farms, holiday homes, boats and share portfolios are, we found, assets our clients don’t want to chew into.

They almost always want to protect the family home, future properties and education provisions for their children.

Peace of mind is another key driver. Nobody wanted to lose what they have worked so hard to build. Maintaining their legacy was also a powerful motivation driving this group.

Although there were some common themes among insurance cover for high income earners, our review found two types of high income clients: conservatives who took a scientific approach to insurance cover, and those who are geared up, living life to the full and wanting blanket cover.

Going conservative

This group took a clinical approach to obtaining insurance cover.

High incomes and assets, debt free, financially secure — these clients prefer the safety net of cover for personal reasons.

Many work so hard that they want to make sure their family benefits no matter what. Many don’t know any lifestyle other than work — so in some cases there may be guilt associated with the long hours and wanting to provide for the family’s future if something were to happen to them.

Geared up and loving life

Not all high-income earners are wealthy — many have been poor savers and put most of their wealth into lifestyle assets such as the family house and beach house. These are often paid for at least a decade before retirement.

It’s also common for this group to hold large, highly geared investment portfolios. Some of these clients are actually underinsured and want to know how much protection they can get for a certain amount. Their insurance cover can end up as a rounded-off number.

At the end of the day, high-net-worth clients are just as worried as the rest of us about the impact of death, disability or critical illness as any other income group.

Shaun Williams is managing director of Risk-Easy.