Too many mortgage brokers are focussed, not surprisingly, on the mortgage loan itself and protection is seen as the poor relation or an add-on that often is not added on. And insurance companies market their products widely, also not surprisingly to the protection arena, without focussing on the specifics of the mortgage advice process.
At the bottom of this chain is the client with enough to worry about financially, without worrying about how they are going to afford their mortgage if they fall ill.
If one asks the uninitiated what is essential insurance around a mortgage they will say life insurance. But life insurance is not necessarily the best and first protection option. This may seem rather back to basics but the debate is essential because without the appreciation of this from the borrowing public, apathy in the industry will kill the cover before it gets in place.
The issue is partly getting the message across, but partly confusion over what we call things. Most clients understand life insurance. Not all understand what income protection and critical illness insurances are or the differences between them. And the knee jerk opting for a lump sum over regular benefits is well documented, if not yet successfully addressed.
When we throw mortgage premium protection insurance or accident, sickness and unemployment cover into the equation – which always seem a bit of a bargain to the client because the premiums are not so scary – the protection message becomes more complex.
All that has to happen next is that MPPI or ASU or income protection gets called mortgage protection and the client becomes even more uncertain about what they have got. Calling an insurance 'mortgage protection' might meet the 'what it says on the tin' message, but there could be one of three or a combination of any or all the useful insurances in the tin.
One adviser assumed that when we talk income protection we mean ASU and when we talk critical illness we mean life assurance with critical illness cover. Well, that shouldn't be what we mean.
It should be treated as compulsory that mortgage brokers treat critical illness and/or income protection as essential as the mortgage loan itself – and that insurance providers treat the mortgage market and the brokers out there distributing their products as essential as the protection IFA or the direct consumer. But without everyone being clear about what is in the tin, when the time comes to open it the chances are the client is going to be disappointed.
your protection related question
Q: Which is more important to protect a mortgage loan, income protection or critical illness?
Richard Verdin is sales and marketing director of Enable
Critical illness cover outsells income protection by about four to one so it would appear that customers and their advisers believe that CI is more important. But I don't believe it as simple as that. I think people just find current income protection products, pricing and underwriting criteria too complicated and therefore income protection is often rejected before being properly considered. It's time for providers to put their thinking caps on.
Mark Mountney is managing director of Premier Mortgage Management The chance of having to make a claim on a CI policy is far less than that of an income protection policy. The latter is the first choice. In decreasing order of priority I would elect for MPPI (ASU), income protection and then CI, all based on the relative ease and likelihood of making a claim. MPPI, of course, covers the fairly high risk of unemployment, which most PHI policies do not. CI is really a back stop or a catchment for severe ailments whereas the protection of a mortgage really does need more everyday illnesses and unemployment.
David Quick is managing director of Ceta
It is not a case of one or the other as they are complementary and every effort should be made to encourage clients to see them this way. One in three people aged between 25 and 35 has experienced unemployment for more than a month, and one in four has been off work for more than three months due to illness. Most home repossessions are due to temporary unemployment or prolonged illness. ASU provides protection in these cases. However, men aged between 20 and 40 have a one in seven chance of suffering a heart attack before the age of 65, with women of the same age having about the same risk of suffering from cancer. In these cases a longer term solution is called for and this is where critical illness cover comes in.
Andrew Cowell is head of sales at The Source
How a mortgage is protected depends on the client's circumstances. Whether more of the client's budget should be spent protecting the loan itself, via critical illness cover, or protecting the loan payments, via income protection, will only be determined by the broker fully understanding the customer's needs. Invariably a compromise is reached with a combination of products at a premium cost the customer can bear. Whatever this budgetary compromise looks like, the most important thing is the broker continues to review the client's needs, taking advantage of potential cost savings in mortgage and protection rates.
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