When it comes to mortgage protection, many mortgage advisers don't consider income protection as a suitable option. But what's behind this reluctance to recommend Income Protection and is there a growing opportunity to meet the changing needs of homeowners.
Way too many advisers still think that protection is just about supporting clients with life insurance (and maybe critical illness) to ensure that their mortgage debt is repaid if they die or get a serious illness.
But if you take that view, are you really providing the best advice to your clients? Income Protection is a product which can bring differing benefits to many people, but it is often viewed as more complex and therefore will take more time to advise on and during stressed market conditions can take up time advisers could be arranging more mortgage products. The last 18 months have been a difficult time in the mortgage market amid rising interest rates and fluctuating house prices. It's hard to put a focus on Income Protection when sometimes just finding the right mortgage for a person can be tricky. And that's before we consider the increased costs associated with interest rate rises.
Like everyone else in retail financial services, mortgage advisers must comply with the Consumer Duty rules. The Consumer Duty's focus on producing good outcomes for clients means mortgage advisers should ‘avoid causing foreseeable harms'. This means that mortgage advisers when recommending options to their customers need to suggest all possible options.
So, where's the opportunity for mortgage advisers?
While the uptake of Income Protection is increasing, there is still a long way to go to educate customers of its importance. By making protection a part of adviser roles, and communicating its importance through industry channels, mortgage advisers can help to close the gap and ensure that more people are protected against income loss.
The increasing trend in young buyers being forced to take longer mortgages, often which run past pension age means we should be looking at mortgage protection differently.
In the last quarter of 2023, 42% of new mortgages were taken out which will run past retirement age*
The likelihood of younger homeowners suffering a serious illness or dying is far less that the likelihood of being off work through illness or injury.
So, this begs the question, do some homeowners have more of a need for Income Protection than Life and Critical illness covers?
I think the answer is that it's down to individual client needs and what's important to them, people don't want to talk about the ‘what ifs' that people when they are looking forward to buying their dream home or making a fresh start. Advisers should focus on the positives and how Income Protection benefits them.
Is it important that they achieve financial stability or that they can afford to continue to pay their mortgage if they lost their income? What would happen if their income suddenly stopped. Most people value financial resilience, it's what most of us strive for throughout our working lives. This is a great way of starting the Income Protection conversation early in the mortgage process and providing your clients with advice, after all that's why they want to arrange their mortgage through an adviser, because they value your advice.
Further opportunities
With younger generations, such as Gen Z and Millennials, facing obstacles in entering the housing market (often referred to as "Generation Rent"), there's a notable shift in the factors driving the increase in Income Protection sales, especially among younger demographics.
Income Protection is not solely a product for homeowners. Think about your clients who you cannot yet help with their mortgage needs - either because they're not ready to buy yet or because they don't meet the criteria for the size of mortgage they need?
If they lost their income would that affect their plans to buy their home? What would happen to their deposit they have worked so hard to build up? They still need money to pay the rent and all the other bills. How many times have you spoken to clients in this position, and they have walked away without any sort of financial resilience plans? You can support them even before you arrange their mortgage by helping them start on the protection ladder. It will build the relationship between you and your client, and they will trust that your advice is in their best interests.
Recent data produced by the Income Protection Task force reveals that 72% of Income Protection applications originate from individuals aged 45 or younger.**
So, ultimately if you focus on income protection you have a product that most of your clients have a need for. And, unlike life insurance, it's a product people can more easily see themselves benefitting from a claim at some point. And don't forget the added health and wellbeing benefits that will come with their policy further helping to show them the true value of protection.
Find out more about Scottish Widows Income Protection
Source:
*FT Adviser, May 2024
Concerns as more young homeowners take mortgages into retirement - FTAdviser
**IPTF & IRESS, 2024
