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Cover that’s as safe as houses

Over half of protection sales – life insurance, critical- illness cover and income protection – come off the back of mortgage transactions.

But despite housebuyers taking on one their biggest-ever debts, many mortgages are still written without protection.

In the days of the endowment mortgage, more people, ironically, hadthe means to repay their loans if they died or hada critical illness.

Despite the scandal over endowment polices, the endowment mortgage did mean that most people got the protection they needed by default. When lenders stopped insisting on an assigned life assurance policy to release funds, fewer people were protected.

Now experts are predicting a slowdown in the housing market. The Org-anisation for EconomicCo-operation and Devel-opment says the UK economy is more vulnerable than other countries tothe turmoil in financial markets and its housing market is at greater riskof a downturn.

For protection providers and advisers, does a slowdown in housing mean a tougher time for meeting protection sales targets? Not necessarily, but wewill have to work hardto continue to write protection business.

There are three ways we can achieve this. The first is to try to add more to the mortgage protection that you are already advising your clients to take out.

Making sure they can repay the mortgage if their financial circumstances change is an important consideration. No one wants to face having their home repossessed if they are struggling with an illness but what people often forget is that paying off the mortgage maynot be enough.

Once the debt is cleared, a sizeable chunk of monthly outgoings are removed but what about everything else that needs to be paid?Gas, electricity and council tax – which all seem to be rising at above the rate of inflation. Food, entertainment, holidays, school expenses, etc.

It is not beyond the realms of possibility that someone who has had the foresight to ensure their mortgage is repaid could still end up in enough financial difficulty to require the sale of their home to make ends meet.

Decreasing life cover for an average-sized mortgage up to £200,000 is not expensive. A couple in their 30s might pay around £20a month for this. Critical- illness insurance might double the premium but,in terms of value for money, protection has never been cheaper due to fierce price competition the industryis experiencing.

Thanks to modern multi-benefit menu protection products, it is easy to addin an extra safety net of protection on top ofthe decreasing cover forthe mortgage. So you could add an extra £50,000 contingency for other living expenses. This would increase the premium marginally but providethe client with much needed extra protection. For the adviser, the extra isa potential offset against the effects of a downturnin mortgage sales.

And even if £50,000 extra cover raised the premium above a level acceptable to the client, it still need not be all or nothing. Anything beyond the mortgage amount is better forthe client. A £10,000 safety net just for other loansand credit card debtwould be beneficial.

The second area to consider is the number of mortgages that actually complete without any protection in place.

Current estimates suggest that only 60 per cent of mortgages have associated protection polices. So even when the housing market was at the height of its boom, there was still an opportunityto write up to 40 per cent more protection.

It is true that the application process for protection products is not as simple as it was, and when a client is focused on their desire to completea mortgage so that theycan buy their home, it is easy to understand how an added protection sale can become an inconvenience.

But that does not makeit any less important. Rather than ignoring the protection conversation, why not simply supplya quotation and arrangea follow up meeting to get the protection in place as quickly as possible afterthe mortgage transaction?

With only a little extra focus, it would be possible to increase mortgage protection sales by an amount sufficient to offset any decrease in mortgage sales. With a little more effort, perhaps a dedicated targeted campaign,it might be possible to see an overall net increasein protection sales.

Finally, expanding your protection sales beyondthe mortgage is guaranteed to offset the effects ofa housing slump.

The two main consumer needs are debt repayment and income replacement. Once the debts are covered, you can engage clients in a discussion about the latter.

Income replacement if the breadwinner of a family dies could be provided by family income benefit(life insurance paid asan income) and this is probably the most cost effective form of protec-tion available today.Couple that with a recommendation for income replacement as a result of occupational disability and you already have a comprehensive protection portfolio.

The UK population is vastly under-protected.It should not require a potential downturn in housing to get us to lookat growing the protection market in other ways butif it presents us with an opportunity let’s grab it.

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