Mortgage brokers selling insurance that only covers their clients' loans are failing to consider thousands of pounds of additional costs that will face bereaved families, research has indicated.
A survey from Direct Line has revealed 40 per cent of Britons only have enough life insurance to cover their mortgage, putting their families at grave risk of financial hardship when it comes to meeting the additional bills and expenses.
Of those who had no life insurance at all, more than 50 per cent said they had a mortgage and/or children.
The survey of 1,600 UK adults, aged 25-55, was carried out by Headroom Research. It coincides with Mintel research that found 55 per cent of respondents admitted they had "less than £5,000 in savings - or even nothing" as a buffer.
Pritpal Powar, head of life insurance at Direct Line Group, urged people to dig out their documents and see whether they have adequate life insurance.
The research suggested that, for too many people, purchasing life insurance is just part of getting a mortgage and neither they nor the broker is thinking about the bigger picture.
In a lot of cases people are getting life insurance from their mortgage broker that only covers off the loan, but they are not getting holistic advice to make sure every potential issue is covered. Robert HarveyThis was also born out in the research, which showed only 37 per cent of those surveyed had gone for cover lasting 25 years and longer.
Mr Powar said: “We’d encourage everyone to regularly review their life insurance needs, especially if there’s a major life event, such as becoming parents or moving house."
According to Robert Harvey, independent protection expert for Drewberry, said mortgage brokers needed to do far more to make sure people had sufficient life cover.
He said: "What Direct line is describing is quite common. We encounter that too. Some people only protect their mortgage but what this research highlights it those people, if something happens, the mortgage is paid off.
"This sounds great, but there are a lot of households where either there is only one breadwinner, or one earns more than the other. If something should happen to the main breadwinner, the additional costs of monthly bills, council tax, running a car, etc can be a lot."
Mr Harvey said some clients had been told they could always 'downsize' should the worst happen, but questioned whether a bereaved partner or spouse can so easily drop everything and put the house on the market, find new schools for the children and deal with all the legal implications of downsizing while they are still grieving.
He added: "Part of the problem is that, in a lot of cases people are getting life insurance from their mortgage broker that only covers off the loan, but they are not getting holistic advice to make sure every potential issue is covered adequately."
For example, he cited the case of a client who had been sold mortgage-only insurance in 2014. The man had then contacted Drewberry, which recommended a family income benefit policy to help ensure an income for his wife and children should the worst happen.
Sadly, he was in contact with the advice firm again last year, to inform them he had just been diagnosed with a terminal illness; on this, the policy paid out to help the family.
According to Mr Harvey: "I don’t want to paint all mortgage brokers in a bad light as some do an excellent job but from speaking with our clients, it is clear many brokers are just focused on protecting the mortgage.
"But if you also protect the family and provide them with some financial security, then you are doing a much greater service to your client, which is very important."
simoney.kyriakou@ft.com
