Mortgage brokers - can we talk about protection?

Journalist: John Fitzsimons, Freelance

ended 19. April 2022

Happy Easter!

Let's talk about life insurance. Last week the Association of Mortgage Intermediaries put out new guidance for brokers to help ‘save’ protection policies, due to fears that it's one area clients will look to cut back on as the cost of living crisis takes hold.

Are they right to be worried? Have you seen clients ditching their cover? And has the way you advise on these policies changed because of the current economic situation? 

What would you do to ‘save’ life insurance and other protection policies?

 

5 responses from the Newspage community

Star Quote
"This is certainly a conversation that needs to be had. As a society, we have a collective view around insurance that we should avoid it at all costs and cheapest is best - meaning it will be the sacrificed before the likes of Sky TV and the gym membership, which is so, so wrong in terms of priorities. No one will lose their family's home because they didn't go to the gym. Even if they take the decision to cancel the cover they have for a short while, if they don't fall seriously ill or die in the meantime, when they come to reinstate the protection, they will need to take out a new policy. However, they will be older and may have health complications then that they didn't have when they originally took out cover, meaning the replacement is likely to be more costly than the original, making the "savings" of cancelling the payment for a few months a false economy. "If you are seriously struggling, the first thing to do is speak to a professional financial adviser who can review your cover, speak to insurers on your behalf and help you find the best solution to help you, whilst helping to minimise the risk to you and your family of any reductions in cover to reduce your costs."
"The only way to save a life policy is to ensure it's sold and advised on in the right way. We know that if things get tight, some people, typically the less financially aware, it's sad to say, may look to reduce costs and cancel their life insurance rather than getting rid of their TV package or reducing their takeaways/meals out. The only thing to be done in that scenario is to contact the clients and explain the importance of insurance. If someone still doesn't want the cover, that's fine. However, we have another problem that permeates our culture at the moment - namely, an inability to take responsibility for our actions and the consequences that can arise. I have no problem if someone cancels their life plan; however, I explain that they are making a positive choice to put their family at risk. If something sadly does go wrong, and hopefully it doesn't, you've given up your right to complain about it. I have seen in my time the consequences of people cancelling life insurance and it is absolutely devastating for the people left to pick up the pieces."
"As the cost of living spirals out of control and the noose around people's finances tightens, insurance will be an area some clients see as less important and look to cut back or cancel policies. This poses a massive risk as having the right cover in place is more important now than ever. For instance, clients unable to work due to illness or injury will have an increased reliance on income protection to subsidise lost earnings in the event of a claim. What in the past might have been a nice to have, may be crucial in meeting a normal costs of living. Advisers need to ensure they are having regular reviews with clients to ensure insurance policies remain affordable and important cover remains in place."
"Protection is a crucial subject for all brokers to be not only discussing with their clients at the outset but reviewing often. With the cost of living crisis, there is the risk that clients reviewing their monthly commitments will cancel their protection premium to reduce their outgoings. It is our responsibility as advisers, to contact our clients and find out how the cost of living crisis is impacting them. Are they continuing to afford their mortgage and protection premiums? "The industry needs to change from viewing a protection policy as a one-off transaction to a lifelong client who has an annual review to ensure the policy still meets their ever-changing needs, and budget. "This could be the difference between making some tweaks to a protection policy to ensure it remains affordable with the vital protection still in place, and the client cancelling completely, leaving them and their family unprotected. For clients who took out a 90% -95% mortgage last year to get onto the property ladder and borrowed at their maximum capacity within their budget, they will likely be finding the increasing cost of living even more of a squeeze. "It's important to ensure clients view the importance of protection as highly as making that monthly mortgage payment, and we can achieve this through education."
"I have not yet seen people looking to cancel their protection policies as a result of inflationary pressures. In fact, people are realising that perhaps they need more protection against bad surprises, as the cost of living for them and their loved ones has gone up."