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Can a dose of reality cure income protection inertia?

Getting mortgage applicants to understand the full implications of being too ill to work is half the battle.

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The Pink Network recently announced its advisers will be required to ask all mortgage applicants to bring in their employment contracts showing their sick pay entitlements, plus details of any income protection policies they already have. Its purpose is to arm clients with the facts about their financial situation if they became too ill to work as part of the fact find.

The network believes mortgage advisers have a moral obligation to do all they can to ensure their clients can afford to stay in their homes if they are too ill to work.

When faced with the reality of their sick pay entitlements, without the mortgage broker even using the words protection or insurance, Pink believes people are more likely to be receptive to income protection.

“Around 80 per cent of people walk into the first meeting with their mortgage broker having no idea how long they will get paid if they are off sick,” says Pink head of network Mark Graves. “If your HR department tells you that you get one month’s salary if you are off sick, you have the information you didn’t have 20 minutes ago and probably didn’t even think about. You’ve got that knowledge without the adviser doing anything.”

According to Graves, some mortgage brokers simply move on with the mortgage application process if the client says they have no idea about their employer’s sick pay arrangements. “I want every single adviser to make sure every client that comes in brings in a copy of their employment contract so they fully understand the implications of being off sick,” he says.

Once the sick pay situation is clear, Pink’s advisers can then explain to clients how they can also get the mortgage paid if they are too ill to work or are critically ill, all within the total budget they have set aside for their mortgage.

“If clients don’t want to take the advice that’s fine, as long as they understand the implications. I don’t want them coming back in two year’s time having been off sick and blame the adviser because they think they should have had income protection,” says Graves.

Although Graves says people should have income protection, he is not simply trying to sell more policies. “I’m just changing the procedure and process to make sure that advisers are doing their jobs properly. I’m stopping the spinning of the roulette wheel where who gets offered income protection and who doesn’t depends on whether the broker is too busy to mention to it or not. It’s about doing the right thing and informing people so they fully understand the consequences if they get sick, and make sure they have a bridge for it,” he says.

London & Country Mortgages sales director Michael Aldridge says that if Pink’s approach was mirrored across the industry it could become the gold standard. “Since the credit crunch days, the mortgage adviser default is being too busy with mortgages so everything else gets squeezed or it’s too difficult a conversation to have,” he says.

Since 2007 London & Country Mortgages has made it a mandatory to put clients in an “educated position” as part of its mortgage application process. This means that mortgages cannot proceed unless the adviser ticks a box to confirm they have talked the client through the basic cost of the cover they need and why they need it. “We shouldn’t be worried about putting clients off,” says Aldridge.

Aldridge believes that the impact of things like illness and death on affordability should form part of the stress testing aspect of the MMR, as affordability does not simply depend on interest rate rises. “If the FCA had been more prescriptive it would have helped the whole industry. At the moment it’s left as interpretation,” he says. ”But anyone advising on mortgages has a responsibility to talk about impact of illness or death. Clients will bury their heads in the sand about the reality of things as nobody wants to be talking about this.”

When talking to his clients during the mortgage application process, Highclere Financial Services partner Alan Lakey broaches the subject of protection right at the outset. “It avoids people saying they haven’t got time to discuss it,” he says. “I still occasionally get people who don’t want it but that is very rare. The truth of the matter is that people do silly things and you can’t stop them. All the adviser can do is say: I’m going to do the best I can.”

Lakey says that sometimes clients don’t want their adviser to burst their bubble, and decide not to follow the advice they’ve been given even if the adviser thinks they have explained it well. “I’m fully behind what Pink are doing – every mortgage adviser should do it. But a lot of mortgage advisers are not protection experts and are too busy doing mortgages,” he says.

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