They advise you that they have just spoken to a home insurance broker. To keep matters simple and to help keep the cost down, the broker recommended insuring half the house.
Let that sink in for a moment. Insuring half the house - what next? Insure half a car? Half a holiday?
Sounds ludicrous, right?
Allow me now to introduce my parents. They bought their residential house in 1979. Their broker arranged a mortgage and he arranged a life cover policy with a sum assured to cover just the mortgage balance.
There is more to a client than a mortgage. A client may be renting and have no mortgage. Is protection planning of any less importance to them?My father recalls that the question asked was: “If you were to die, would you want your mortgage paid off?”, to which they both replied, “yes”.
Sounds straightforward enough. My father was a forklift driver and my mother was a housewife. Neither were particularly financially savvy.
At future reviews, the conversation focused on the mortgage renewal and there was no further mention of a protection review. There is no conversation around my mother being a housewife, who by 1988 is raising three children, with my father’s income being the sole household income.
There is no conversation regarding their lifestyle, just that they have the mortgage covered should either of them die.
So, what’s the point of this family story? I believe the broker only insured half (or less) of their true value.
He protected the mortgage and nothing else. In the event of their passing, the mortgage would be paid off.
That’s one of the expenses taken care of, but what about the others? Food, bills, education costs, after school clubs, their goals and ambitions in life, financial support for the children, retirement planning and so forth. In short, the lifestyle they had envisaged for themselves and their children.
My father and mother are both thankfully still alive and my father was able to work until he could retire at his choosing.
So why do I refer to this? Well, 40 years later here we are in 2019 and the protection conversation still, for many, revolves around the mortgage.
The products may have changed but the initial conversation has barely evolved: “If you die or are critically ill, would you want your mortgage paid off?”.
There is more to a client than a mortgage. A client may be renting and have no mortgage. Is protection planning of any less importance to them?
As an industry we need to make one simple change and ask: “If you die, are unable to work due to sickness or are critically ill, what would you like and what would you need financially?”. Then sit back, shut up and listen.
I adopted this six years ago and it changed the entire protection conversation.
With the right education and information, a client can recognise the importance of their whole income in determining the lifestyle they desire. A lifestyle within which the mortgage may be just one part.
I let them tell me what they wish to protect within their chosen lifestyle for both them and their family. Once in six years has a client asked to protect just the mortgage.
In our industry, protection conversations start with the mortgage and then we try to up-advise (I’m deliberately avoiding the word up-sell) other protection needs.
At a time where the protection gap in the UK is perhaps wider than ever, we need simplified protection planning.
Start the protection conversation with the client and let them dictate their requirements, keeping affordability in mind, of course. Highlight the importance of protection planning to all aspects of life.
Avoid squeezing the protection conversation into the end of the mortgage meeting. Instead, make it a separate conversation and give it the precedence it deserves.
The majority of investment advisers will have an investment proposition. If you truly want to move ahead with the protection planning arena, develop your own protection proposition. We owe it to our clients and their families to discuss true lifestyle protection planning.
Jiten Varsani is a mortgage and protection adviser at London Money
