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Insurance Review: beyond bricks and mortar

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Every day in the UK 100 children are bereaved of a parent and many of these families will be affected by more than just the loss of a loved one. Many will also suffer huge financial implications at the same time.

Given that having a conversation with a client about protection is tough at the best of times with many people preferring to bury their heads in the sand and believe that ‘it won’t happen to me,’ it is often easier for advisers to just focus on protection for the mortgage.

This is a tangible amount of money and directly relates to keeping a roof over the family’s head. Most will see the need for protecting that and it will remain a high priority when discussing cover but it shouldn’t stop there.

Think about how much a family needs to spend on childcare, utilities, food, transport, clothes, never mind the nice things such as birthday and Christmas presents, days out, sports clubs and school trips.

In fact, LV= carries out a survey each year where it looks at the average cost of raising a child to age 21. In 2015 this came in at approximately £11,000 per year. This is in addition to having to pay for essential living costs too.

At present, there is a chance that families could be entitled to a Widowed Parent’s Allowance if they have at least one child, but this would be just £112.55 per week and would only pay until the child leaves school or the parent remarries.

Given that Britons are not renowned savers, with approximately 36 per cent of all households having no savings to fall back on and a further 13 per cent having less than £1500, it is clear to see that advisers do need to encourage clients to think ‘beyond bricks and mortar.’

Dealing with the loss of a parent would be traumatic enough for any child to deal with. You certainly wouldn’t want to add to this the stress of moving home, potentially changing schools and all the associated distress that would be involved with this.

We need to encourage families to think about not only securing the roof over their head but also being able to afford to stay in that property long term. The good news is that there are policies designed to meet this need for extra family protection.

Family Income Benefit can provide a cost effective and perfectly tailored solution. It will provide a regular income for whatever term is chosen, so if one of the covered lives passes away there is an ongoing income to pay for essentials that still exist even after the mortgage balance is cleared. It therefore complements mortgage protection and ensures the family home is secure and life can go on without the added stress of financial pressure.

To give an idea of cost for this type of policy, a non-smoking 35yr old couple could take out cover to provide an income of £1,000 per month for 21 years for as little as £12 per month. If you were to combine this with mortgage protection as part of a multi-benefit policy the cost can be reduced even further, meaning it is an inexpensive addition that could make all the difference.

As well as being cost effective, the fact that the benefit is paid as a regular amount can also be attractive. While a level term assurance policy for a set sum assured could be used to cover additional outgoings and the total benefit would not reduce as the years went by, it could prove difficult to manage.

It is often easier for clients to know that they will have a set amount of income coming in for a set number of years often tied in to when a child leaves home.
Ultimately, the policy that you end up recommending will be down to each individual’s requirements and priorities as well as budget. Family Income Benefit is just one way of meeting a potential need.

What we must ensure is that we are taking the protection conversation beyond just covering the mortgage balance and questioning whether there is an additional need for cover beyond this. We are perfectly placed to do this when providing mortgage advice.

It may make the conversation last a little longer and may require us to ensure the client thinks about scenarios they don’t want to entertain, but if it means there is more chance of a customer not just being able to buy their home but to remain in it, it is absolutely the right thing to do.

Michael Aldridge is sales director at L&C Mortgages

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