SPECIAL FEATURE: The FCA should promote IP
Understanding a client’s capacity to repay a mortgage has always been first and foremost for many lenders and advisers, and the MMR now seals this into the sales process for everyone. It makes a lot of sense to explore what would happen if interest rates rose by a few per cent, and the impact it would have on someone’s ability to keep up with mortgage payments. But what if the client suddenly had no income at all?
The regulator missed a trick in the implementation of MMR, in not requiring advisers to assess people’s ability to pay their mortgage if they were unable to work due to ill health or accident. Surely the biggest point is that everything is underpinned by their current level of income being maintained. Advisers must start having a conversation with every client, right at the beginning, about the importance of ensuring people have sufficient income in the event of incapacity or death to meet their monthly essential outgoings, and in that order.
When protection is bought it’s often in the exact reverse order to people’s real need. Life cover sales are over a million a year, critical illness around 500,000 and income protection sales sit at around 100,000 annually. People are much more likely to suffer an illness or injury that prevents them from working than die before they retire, and people naturally look to protect debts in the first instance. But even if the debt is covered, it’s an income that allows you to carry on living your life, covering the day-to-day expenses.
We all know that buying a house is a stressful time, for people’s finances as well as their general wellbeing, but there are many options to fit appropriate cover to a client’s budget. Short-term products can be considered, alongside tweaking the terms of a long-term product to bring down the cost. With cover like VitalityLife, by engaging in healthy behaviour people can receive an upfront discount, annual cashback, and annual premium discounts that could even offset mortgage interest rate rises if they occur. People can also save their lifestyle from taking a nosedive when taking on a mortgage, through tangible benefits such as half price gym membership, weekly cinema tickets and holiday vouchers.
Most people wouldn’t know what their financial position would be after three, six, nine or even 12 months of being unable to work. People often overestimate the level to which they would be looked after financially by the state or their employer, so it’s essential that advisers are able to clearly set out what would happen to their finances over time, if a serious life event prevented them from working. Industry campaigns such as Seven Families can help advisers highlight the importance of protection, with first-hand accounts of the difference the support has made to people’s lives.
The protection industry can help more mortgage advisers recommend income protection at point of sale by making it as easy as possible place business. Application and underwriting processes should be as simple as we are able to make them, to ensure that people aren’t missing out on invaluable protection because the process was deemed too long-winded.
It’s every adviser’s duty to ensure their client can maintain their mortgage payments. Discussing the need for income protection as part of this is too important not to do.