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Why it pays to know the detail on insurance

Mortgage advisors are being told to sell insurance – but many will need to get up to speed with the detail

Some mortgage advisers I know tell me they are getting a bit fed up with being told to sell protection every week.

They know they could or rather should sell more but they may not always know where to begin, while for others it’s a case of lost knowledge.

A lot of mortgage brokers used to sell protection, but the sheer volume of mortgage business in recent times took precedence.

Nobody wants to be in a product they are not comfortable with, the fear being that clients could ask questions that they will not understand or be able to answer.  

Protection specialists would struggle to become mortgage brokers overnight so why should the reverse be any different?

This column is an attempt to kick-start the process and future columns will be build on this theme.

Starting with the basics, there are three core products that make up the protection industry – life cover, critical illness cover and income protection – previously known as permanent health insurance.

Around one million life policies are sold on an individual basis each year, with around 600,000 CIC policies and around 130,000 IP policies.

Claims under CIC and IP are much more likely to happen so these are more expensive at roughly five times the cost of life cover on average.

In terms of earnings, a £30 per month premium on any of these policies will pay in the region of £500 commission up front. Pure protection products have no investment element – nothing is returned to clients unless a claim is made – and life cover pays out if the life assured pops their clogs during the term of the policy.

CIC pays out on the diagnosis of one of the conditions listed within the plan and most policies cover around 30 conditions.

Roughly 80% of all claims are related to either cancer, heart attack or stroke and current statistics suggest that around 90% of all CIC claims are paid.

IP pays a tax-free income in the event of ill-health until the client either returns to work, passes away or reaches retirement age.  

Optional unemployment cover for one or two years can usually be added at an additional cost.

Each product comes with an array of options. Generally you can choose the level – increasing or decreasing cover – single or joint life policies (single life is usually better value for money), lump sum or income-based benefits, with or without waiver of premium (which means premiums are waived in the event of a claim or loss of employment).

And of course products and the features available from different insurers can vary greatly, as can the prices.  

Speaking as a former adviser, what many protection advisers will do is quickly assess clients’ situation, prioritise their needs based on the products available, agree an affordable monthly budget and then discuss options and run quotes by them until both parties are happy.

There are other products worth knowing about such as whole of life, private medical insurance and payment protection insurance, which I will talk about in detail in future columns.

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