Although mortgage brokers claim they have limited time, the Mortgage Market Review is highlighting the growing importance of protection, says Mike Farrell.
Admittedly, not all of those who live by themselves will be homeowners, but the figures do serve to highlight the very real need that exists when it comes to income protection. After all, even those who live with others should be discussing the merits of income protection if the money they earn from working is relied on to make certain financial commitments such as mortgage payments.
Our latest research into the current health of the UK workforce looked at how employees guard against sickness, and our study revealed that more than a third of workers would not receive sick pay from their employer.
This means more than 7.8 million workers would only qualify for statutory sick pay of £86.70 per week, or £375.20 per month, if they fell ill. Given the fact the latest industry figures indicate the average weekly repayment for mortgagees is £138.60, or £600 per calendar month, those relying solely on statutory sick pay would quickly struggle to make ends meet.
Long-term affordability
The MMR is designed to reduce the amount of risk a mortgage lender takes on by assessing whether someone’s income and outgoings will permit them to make their mortgage repayments. However, that doesn’t consider affordability in the long term.
While no one likes to think of themselves as vulnerable or at risk of dying or falling ill and being unable to work, unfortunately none of us is invincible and the reality is that some people will need to be off work for a large period of time.
It is therefore prudent for potential homeowners to be made aware of the options available that would offer them financial assistance if they suddenly lose their income, as well as the fact that deciding not to purchase any protection means that they have chosen to self-insure.
When talking to mortgage brokers, one of the most common barriers to selling protection is the fact they don’t have time to sell protection. However, there have been a number of recent investments in the income protection industry to ensure products complement the mortgage sales process and enable advisers to complete and submit a client’s application for tele-underwriting within minutes.
Using tele-underwriters, most of whom come from a medical background, can reduce the incidence of requesting a GP report, allowing policies to be placed on risk faster. Splitting the protection sales process in this way not only saves advisers time, it also removes any risk of non-disclosure from them.
The role of protection providers and intermediaries is to help remove financial risk from a household by ensuring that, should the worst happen, someone does not find themselves in a financially vulnerable position.
But, in this post-MMR world, protection products now have a far greater role to play in ensuring the long-term affordability of a mortgage.
Mike Farrell is head of protection sales at LV=
