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Protection brackets

Open a newspaper or turn on your television and you will see how often unexpected events lead to tragic consequences for some unsuspecting soul. When we hear or read that well-known throwaway phrase “Your home is at risk if you not keep up repayments on a mortgage” few of us stop to consider that being unable to pay could happen to anyone.

How do IFAs get across the notion of protecting loved ones through life cover and protecting standards of living and dignity through critical-illness insurance, disability cover and income protection?

Apart from trying to explain that medical advances mean we are living longer and surviving previously considered fatal illnesses or setting out the consequences of not having the appropriate cover, by the time most IFAs point out the demise of the welfare state and the increased frequency of serious illness, many customers will have lost the will to live anyway.

Put that scenario together with the fact that, in many pure protection policies, there is usually no prospect of a cash return unless you have to claim on the policy and you quickly realise that selling protection products is never easy.

But it is a profoundly important issue that potentially affects everyone, from the typical example of a young family with children to the ever increasing number of single-person households through to more mature customers looking to protect growing extended families.

When you consider that most people acknowledge the need to plan to provide income when they retire, what about if income stops before that time, when potential liabilities are most pressing?

The often quoted statistics of people with no life cover at all or only enough to cover their outstanding mortgage is frightening and the trend is continuing, with many Isa mortgages entailing no life cover and lenders reluctant to store assigned life policies with title deeds. There may even be a connection with the demise of the endowment culture that included life cover or changes as couples break up or even because low interest rates allow more people on lower income levels to buy their own homes.

Whatever the reason, the problem is increasing and when you consider that even fewerpeople have critical-illness cover or income protection, despite the fact they are more likely to need to claim on these policies than on life cover, we, as an industry, need to work on breaking this logjam.

I can understand most people are fearful of committing to paying policies for great lengths of time, especially when job security is volatile, relationships break up and children come along when least expected.

Many of these life events also prompt the need for a move of house or a change to protection arrangements.

That is why I believe the only way the industry will make inroads into the dire need for protection is by making the products and advice we offer more flexible and tailored to individual needs and the process of accessing schemes easier.

But we must do this without compromising on the support and remuneration provided to IFAs because the professional advice they provide remains crucial to our future.

Let me give you an example. People move house about every six years. At each move, they need to review their financial circumstances to include life cover to support any additional borrowing, increased monthly mortgage payments and increased income protection, rebuilding savings or investments which may have been depleted.

This review may also provide an opportunity to review policies to ensure rates are competitive or that any investment element is performing as required or whether pension funds are receiving adequate contributions to take most advantage of tax treatment.

Mortgage lenders are already becoming aware of this changing trend towards the need for flexibility and, along with the introduction of flexible mortgage loans, insurers must respond with flexible protection products.

This does not mean we should compromise on providing comprehensive cover. In fact, it should mean we can offer more comprehensive cover tailored to provide all relevant options to clients&#39 personal circumstances.

To do this, we also need to communicate a change in mindset to clients – namely that cover against critical illness, disability or prolonged periods of ill health are not additional nice to have bolt-ons but are essential components of any cover package.

Affordability is anintegral issue but should only determine which products are less essential to provide from current available finances and when a review to include other options may be appropriate.

Even first-time buyers, with the greatest outgoings against income and thus the greatest protection need, should consider cover for all avenues. But, at the same time, a single person with no dependants should not automatically be sold a decreasing term plan to cover a mortgage. It is a case not of one size fits all but fitting cover to the needs. Formulaic sell-ing is dead and that is why advice is so crucial.

IFAs are always cost-conscious but if cover for life, health and income can all be provided in one package from one company that provides flexibility throughout the pol-icy term, customers are likely to be more comfortable. The IFA will save time in admin while continuing to earn standard rates of commission. Clients who are happy they have an appropriate and comprehensive tailored package are less likely to be swayed by low-cost, simplistic, scaled-down products offered by phone or on the internet.

Add to that the experience, knowledge, service and reassurance displayed by an independent insurance professional who demonstrates how individual components best meet clients&#39 needs and customers will recommend the peace of mind to family and friends.

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