As the Bank of England has raised interest rates in response to stubbornly high inflation, many families face the prospect of soaring monthly mortgage repayments.
Against this backdrop, it’s now more essential than ever for advisers and brokers to ensure a client has the right level of protection in place should the unexpected happen, resulting in a loss of income.
Not only from the perspective of protecting the loan itself, but with the advent of the Financial Conduct Authority’s (FCA) Consumer Duty regulations in July, brokers must act in good faith, avoid causing foreseeable harm and enable customers to pursue their financial objectives.
Among both advisers and customers, there are often preconceptions around the value of income protection (IP), with most opting for life insurance as a default.
This is despite income protection being arguably the most important insurance a customer can have.
If their pay stops because of physical or mental ill health, they might not be able to cover basic living costs like housing or even food.
Leaving customers vulnerable
Research from Legal & General found that 31% of respondents felt they had no need to protect their income, pointing to a lack of awareness that earning power is a person’s single greatest financial asset, above property and savings in the majority of cases.
From the mortgage broker’s perspective, when the protection conversation comes up with clients, the focus is often on ensuring a family is supported after death, resulting in life insurance taking priority.
However, depending on the level of cover, a life insurance pay out may not leave a family with sufficient funds in the long term.
Protecting a mortgage with only this form of insurance can leave many customers vulnerable and unable to cover bills and living costs, which is why it’s so important to consider income protection.
Opportunity to add value
Some might say only arranging life cover to pay off the mortgage in the event of death is almost a pointless exercise; just the same as a mortgage adviser must confirm affordability while they are working, they must do the same if someone is unable to work long term.
There is also a real opportunity for brokers to add further value to the protection conversation by highlighting the rehabilitative services this cover provides, rather than just focussing on the amount a policy would pay per month.
IP is designed not only to provide an income if a person cannot work for a prolonged period, but also to get that person fit and well as quickly as possible so they can return to work and resume their normal life.
In addition, wellbeing support services offered by most providers can also give customers and their families access to a range of tailored services, from practical and emotional support to physiotherapy, dietary and lifestyle guidance.
After all, an income protection claim should be the last resort.
Most people who have been taken ill or are recovering from an injury want to return to work as soon as possible.
Specialist protection advice
Across the industry, we must remember each client’s needs are unique, and brokers should be assessing on a case-by-case basis whether a person’s financial situation requires the attention of a specialist protection adviser to ensure their needs, and those of their dependents, are being properly met.
This is particularly important in the spirit of Consumer Duty.
For the best customer outcomes, advisers and mortgage brokers need to move away from the perception of personal protection as an add-on, to a tailored package of cover and benefits, offering both peace of mind and the tools to support a faster recovery.