Is something always better than nothing? Probably. Recently I have been spending time canvasing opinions of why people don’t arrange protection when they need it and in fact sometimes even want it. Perhaps not surprisingly, budget was the main reason. But what worries me is that if the reason really is the budget it means many people end up doing nothing at all.
There are ways to arrange protection insurance to fit a budget. In fact, most premiums start at around £5 per month. Here are some ideas to help get more clients protected on tight budget:
Consider decreasing cover instead of level, which some people do even for non-mortgage related cover. In theory, the need for protection can reduce as you get closer to retirement as the children get older, so if you cannot afford level or indexed cover, go for decreasing cover. Another great way of achieving this is through a family income benefit policy, which pays an income instead of a lump sum.
Rather than lump all your client protection needs into one life plan, you could tailor the protection for each of the needs. For example, your client has a repayment mortgage for £200,000 over 25 years and two children aged two and five – you could look at one plan for £400,000 over 25 years on a level basis – but it would be more cost effective to take out a decreasing plan for the mortgage over the 25 years, and a level plan or family income benefit for the rest.
Critical illness cover: in an ideal world we would protect the full mortgage balance with extra cover on top for the family. However, this can be expensive and for many families out of reach. But instead of no cover at all consider enough life insurance to cover the mortgage – with a smaller amount of CI. The amounts do not have to be the same.
The same principle applies with income protection. This is often the plan that should be recommended the most often, but industry sales are well below life insurance and CI. The chances of a person dying during the term of the mortgage is far smaller in comparison to someone being unable to work due to an injury or illness. You have just arranged the mortgage for the home – don’t risk losing it by not taking out income protection. To keep costs lower, cover can be tailored to match the bills rather than the salary, and most insurers now offer short term plans, which pay out for a couple of years instead of until retirement, cutting the price significantly, and is most definitely better than nothing at all.
Emma Walker, chief marketing officer, LifeSearch