Mortgage advisers should prioritise discussions about protection with their clients if they are to ensure they have adequate cover in place and have a ‘Plan B’ to fall back on.
That was the view of Johnny Timpson of Scottish Widows who was speaking at today’s Financial Services Expo Wales.
Timpson highlighted how significant numbers of working-age people still believed the State would be able to support them adequately should they lose their job or become too ill to work.
However, with major cuts to benefits now in place, he argued that all mortgage advisers’ clients needed a protection ‘Plan B’ if they were going to be in a position to continuing paying their mortgage and supporting their families.
“We need to have more protection discussions with clients,” he said, “because the protection gap is increasing day-in, day-out. Please don’t step over the protection debate when you are talking to your mortgage clients.
“The raft of welfare change that’s impacting working-age people is significant. A lot of clients are going to have to think seriously about their family’s financial resilience. What happens to them if something does go wrong? We are poor as an industry in talking about Plan B’s with clients. If you think that the State will provide, think on.”
Timpson outlined how only 50% of clients with a mortgage had any form of cover and that the average UK family only has savings which would cover them for two months. He presented as an example the significant welfare cuts that have been introduced for widowed parents with dependent children. Previously the maximum benefit they could receive was £129k; now it is £9.8k. Plus those widowed individuals with dependent children, who had been co-habiting were not eligible for any benefit – only those who were married or in a civil partnership. “Advisers need to have these conversations, especially with co-habiting clients,” he said.
Finally, Timpson pointed out that inter-generational gifting – the so-called ‘Bank of Mum and Dad – had increased dramatically in recent years but that clients were potentially walking into a major IHT issue by not documenting such gifts. He argued that when discussing the use of gifts with mortgage clients and their families, advisers needed to present a protection solution otherwise they could be stung for large amounts of tax.
“Sales of IHT protection policies during this time have gone through the floor,” he said. “The increase in gifting has not been followed by an increased IHT protection solution uptake.”