Rising household costs are making income protection more important for customers, but harder for many to afford, according to research from LSL Financial Services.

A survey of brokers at the inaugural LSL Protection Forum in May found that 86% of respondents saw income protection as the area of greatest customer need. This compared with 7% who cited critical illness cover and 5% who pointed to life-only term assurance.

Two-thirds of brokers said the cost of living, including bills, food and energy, was having the greatest impact on customers’ financial confidence. Mortgage rates and borrowing costs were cited by 15%.

However, the same pressure on household finances appears to be making protection harder to arrange. Some 64% of brokers at the forum said price or affordability was the main reason customers were currently giving for declining protection, with household budgets under pressure from other costs.

When asked how demand for protection was changing in the current economic climate, 57% said there had been no real change, while 8% said demand was decreasing.

LSL FS said the findings underlined a difficult advice environment in which customers may have a clearer need for protection, particularly income protection, but less space in their monthly budgets to put cover in place.

However, 35% of respondents said demand was increasing, suggesting that some customers are becoming more aware of the need to protect their income.

Craig Hall (pictured), director of strategic partnerships at LSL Financial Services, said: “Findings from our Protection Forum last month showed an emerging paradox. On the one hand, the cost-of-living squeeze is making income protection more relevant. On the other, it makes affordability the biggest barrier to putting that cover in place.

“Customers are rightly focused on whether they could keep paying their mortgage, bills and other essentials should their income stop. That makes the advice conversation even more important.

“When budgets are stretched, brokers need to help customers look beyond the monthly cost and understand what they can realistically protect, where the biggest risks sit and how cover can be shaped around their individual circumstances.

“It is encouraging that a third of brokers are seeing protection demand increase, despite the pressure on household finances. But the affordability challenge is real, and there is more work to do to help customers understand their options and build the right level of protection around what they can afford.”