Covering up in a time of uncertainty

As unemployment rises and state support falls ensuring your clients have comprehensive protection in place will bring them peace of mind while being good for your business


In the current economic climate the importance of insurance is clear. Financial belt-tightening and less state support for those in need means individuals will increasingly be expected to take more responsibility for their own welfare.

This makes it an ideal time to encourage customers to ensure their mortgages are fully protected. Clearly, this is also in the spirit of the Financial Services Authority’s Treating Customers Fairly initiative.

The rate of unemployment has fallen slightly to 7.8% recently but this masks an underlying trend towards more part-time working, and we still face a considerable number of job cuts in the public sector.

In 2007 the Association of British Insurers estimated that only 18.2 % of new mortgages were covered by mortgage payment protection insurance. For anyone who has suffered unemployment or been unable to work due to ill health the benefits of MPPI will be clear.

What’s more, the premium cost is reasonable at the moment. But with unemployment likely to rise soon the cost of this cover is also likely to head north, hence the need to encourage customers to buy cover before a higher number of claims leads to price rises or even the exclusion of certain occupations. Some insurers only offer cover when a customer buys a new house or remortgages so these make good sales opportunities.

But it’s not just unemployment that threatens customers’ ability to repay their mortgages. Cancer Research UK estimates that one in three individuals will be diagnosed with cancer at some point. The good news is that more people now survive cancer but many need time off work to recover and some might even retire.

The British Heart Foundation estimates that around 2.6 million people are living with coronary heart disease, while Legal & General says the average age for a heart attack to trigger a critical illness cover claim is just 43. It’s clear that many of these claimants are likely to still have mortgages and will need to earn a living.

Having CI cover in place can make a big difference to claimants’ quality of life, allowing them to pay off their mortgage, adapt their homes to cater for disabilities or even pay for medical care. Above all, it can make the difference between a borrower being able to stay in their own home and having it repossessed at what is already a difficult time.

Life cover is essential too, so if the worst should happen and the borrower dies their family can have the peace of mind of knowing that the mortgage will be repaid and they can stay in the family home.

But how many of us financial advisers offer our customers comprehensive protection, meaning customers and their homes are covered against all reasonable eventualities? It’s an easy sale to offer life assurance when the mortgage lender makes this a condition of the loan but how do we ensure that if the customer dies the money gets into the right hands at the right time?

Similarly with buildings insurance, if the lender requires this to be in place at the time mortgage funds are released it’s a relatively easy sale.

But it’s harder to ensure that the insurance sold at outset accurately reflects the valuer’s comments and the reinstatement value.

We have a team of mortgage coordinators whose job it is to tie up all these details on a mortgage application, ensuring that reinstatement values are noted, insurances are put on risk at the right time and cover does not lapse accidentally – for example, by a customer inadvertently cancelling a direct debit.

It’s not just about getting the right cover in place – how many of your clients have an up-to-date will?

And what about the sale of protection products you know your customers should have but are reluctant to buy? You know they are more likely to suffer a heart attack or be diagnosed with cancer than die before the age of 65 but how much do you promote this?

In the current economic climate customers are watching every penny but they are also likely to find that in the event of ill health the state benefits available to them are insufficient to pay their mortgage or even cover their everyday expenses. And it’s not just about getting the right cover in place – how many of your clients have a valid, up-to-date will? Around 58% of adults in this country do not have a will in place. Getting your customers to write one would be a good example of TCF. You would know that in the event of a customer’s death their estate would pass to the people they really want to benefit rather than the state.

And will writing has another benefit – a referral to a specialist will-writing firm such as Redstone Wills can earn you an introductory fee, while for those companies with an inhouse will-writing practice there is embedded value from future trustee and executor work. In fact, the promotion of will writing has become an integral part of our customer proposition.

Customers often know they should have the forms of protection outlined above in place but don’t feel able to commit to them when buying their homes, usually due to stretched finances. This is particularly true of optional products such as CI cover and wills.

Provided you can identify these customers there’s an opportunity to approach them a few months later, once their financial situations have settled down. While some products such as accident, sickness and unemployment cover may only be available at the time a customer is buying a home or remortgaging, you can get back to them after six or 12 months to offer them the types of protection they did not commit to when you first met.

At a time when there is only limited state help it’s important to ensure you meet your clients’ protection needs throughout your relationship. And of course, if you do this you’ll be protecting your own income too.