The basics of financial planning comes down to this: money comes in and money goes out.
But what happens when a client is diagnosed with a life changing critical illness? That is where personal protection policies come in: life insurance, CI insurance and income protection can provide a vital security blanket in precarious times.
Figures from Schroders Personal Wealth show life insurance as the most popular form of personal protection insurance, with one quarter of UK adults (24 per cent) already owning it.
However, this figure drops significantly for CI insurance and IP, which are only owned by 10 per cent and 7 per cent of UK adults, respectively.
Among those without personal protection, a fifth (19 per cent) said that they do not have enough knowledge about it – the same proportion of people who feel they do not need it.
Dispelling mortgage myths
Jiten Varsani, a mortgage and protection adviser at London Money, highlights protection planning as a separate but fundamental part of any mortgage/financial planning for a client.
At Protection Review's event ProtectX3, which took place earlier this year, Varsani questioned why mortgage protection takes so much precedence over other types of policies: “We would never think about just insuring half of our house, or a quarter of our car, so why do we feel it’s okay to protect just one aspect of our client’s needs?”
Varsani added that when he approaches the conversation with clients, the focus remains on the need rather than the product: “The key part of this is highlighting the importance of the client’s income... and to discuss what would happen in the event of death or ill health.”
He emphasises that discussing protection only when a client gets a mortgage is a long-standing industry and consumer misconception.
According to VeriSmart (a property inspection company in the rental sector), based on current rates, tenants privately renting will make up 50.7 per cent of the housing market by 2039.
To meet growing demand, financial advisers must adapt and consider IP insurance and CI cover to meet the demands of renters as well as homeowners.
However, this does not discredit the significance of protecting a client’s mortgage.
Managing mortgage protection
According to comparison website Finder, the average mortgage size for first-time buyers in 2020 was £170,301.
Chris Dunne, protection proposition manager at Scottish Widows, says: “Mortgages and protection go hand in hand. The mortgage helps your clients buy their dream home, while protection helps them to hang on to it. But it can be hard to put the right emphasis on the need.
“Make protection the cornerstone for the affordability conversation. Introduce it early in the meeting to help your clients get the mortgage they need. Ask them to explain their employee benefits including sick pay and help them think about the realities of putting in place a strategy for keeping their home should the worst happen."