As an adviser, when you see a first-time buyer client, what are their main priorities? I suspect it’s just the one. Getting a mortgage to buy the flat/house they want. Anything else, probably seems superfluous to them and may well feel like a cost that is simply not worth it at this stage in their lives.
And thus the ‘protection gap’ was born. I spoke to an industry colleague recently who works at a lender and the feedback I received was that, when it comes to first-time buyers protecting their mortgage payments and income, the take-up for such policies remains incredibly low.
While life insurance remains more of a priority, the overwhelming feeling is that the cost of purchasing a first home is so high, that there is no money left for protection. Advisers will know only too well how hard this ‘sell’ is – many advisers work very hard to ensure their clients have at least some level of protection; some of course feel that it’s a conversation which will only lead to a dead-end, and therefore they don’t even embark upon it. In my view, that’s a mistake.
That’s because it should be absolutely clear to anyone active in this sector, the difference having any level of protection can make to those very clients. Indeed, you might well argue that we should move away from any sort of focus on life insurance for first-time buyers because it’s perhaps more likely they will need income protection giving longevity statistics.
Perhaps it’s not even clear to those very same first-timers that they’ll only get any sort of life insurance payment on death, whereas other protection policies pay in the event of accident, illness or unemployment. Having examples of where such a need was fulfilled can be absolutely crucial and insurers focus particularly on case studies and payment statistics to highlight the benefits of such policies and the difference they can make.
At the recent FSE Midlands show in Coventry, David Bedlow of MAB talked about the importance of protection for borrower clients, reciting an example from an adviser where the decision to take out protection cover – and keep it – was life-changing for the individual concerned and their family.
From memory, this was a case where the mortgage adviser arranged the mortgage, and then discussed the protection needs with the client. They all agreed that protection was relevant however, down the line, the adviser noticed the policy had been cancelled. Instead of just letting it fly, they phoned the client, went back over some of their initial conversation and came back to a decision where all parties decided some protection was better than none.
Protection was re-instated and the enormity of this decision was only later made clear when the client became very ill and needed to claim on that policy so they could have the necessary treatment without returning to work, or worrying about how they were going to pay their mortgage/bills. The client eventually returned to full health.
It brought home to that adviser not just how important the protection conversation is, but also how important they as a business keep on track of those clients who cancel policies, and (at the very least) get back in contact with them to hear why they’ve cancelled and what can be done to ensure a level of protection remains in place. Indeed, the adviser appointed someone in their business to do just that, because they were fearful of not having the time one day to make such a call, and they knew full well the potentially devastating consequences for such clients if something did happen but they had no cover to call upon.
The difficulty of course for advisers is that protection isn’t mandatory and making a convincing case for it – especially at a time when the client is probably only thinking about getting into their new home – can be tricky to say the least. Money is likely to be tight, and the costs of purchasing will be front and centre for any first-time buyer. They are, of course, very significant. And yet…
Knowing exactly what can happen in the future should ensure that all advisers either have the protection conversation themselves or put the client in contact with a specialist to discuss it. It’s on such decisions that lives are changed forever – advisers have the opportunity to deliver a positive outcome even in a situation which can seem dark. Let’s ensure the next generation of homeowners are as protected as they can possibly be.
Pad Bamford is business development director at AmTrust Mortgage & Credit