"Many readers will recognise the expression ‘hierarchy of needs’ made famous by Abraham Maslow in his theory of human motivation."
When mortgage brokers give protection advice, the accepted mentality is that the mortgage debt should be considered before anything else. They will often tell me that they need to get the ‘basics in place’ so that ‘at least the mortgage is covered’.
However, dying with a mortgage (typically paid been the ages of 25-65) isn’t very likely and the mortgage itself isn’t a problem until the customer can’t service the debt.
“Lost income due to ill-health or injury is much more likely than in death.”
Therefore, surely the most ‘basic’ need is to replace a customer’s income when they are unable to earn. Unfortunately, advisers tend to ignore this logic as decreasing term assurance (DTA) is cheap and easy to sell.
It also occurred to me that advisers are very much left to their own devices when determining the order in which they should sell protection products.
Usually, it’s sold: Life Insurance, Critical Illness Cover (CIC), then Income Protection (IP) – despite the likelihood of needing to make a claim being in inverse correlation to this order.
“Wouldn’t it be better if advisers had a thread to follow through the protection maze?”
It was this thinking that led me to the concept of a hierarchy of protection needs. It’s based on a combination of the likelihood of an event taking place and the relative significance of the financial need when it does – income or lump sum.
Undoubtedly, this will challenge a lot of sales processes because it creates the need to reverse many conversations currently taking place.
But if we think about this from the customer’s perspective, isn’t it more important to recommend products based on this criterion than follow the status quo?
“When ill-health strikes, the question should be, ‘what are the financial consequences?’”
What happens to income must be the first consideration. It could be that there is no impact – unlikely, but possible and, in any case, an adviser needs to address that issue first.
It’s more likely that a prolonged absence from work will have a detrimental impact on the customer’s financial position, to such extent that it will threaten their lifestyle very quickly.
In 2023, Zurich Insurance published a report titled ‘The hidden cost of cancer’, concluding that, on average, an extra £541pm is spent following a cancer diagnosis. These costs include additional childcare, unpaid leave, and even hospital parking charges.
IP can only replace lost income, so customers may benefit from CIC alongside to cover those costs. It might also help with home alterations, such as ramps, and private treatment.
“This is why it’s better to address the event and its financial consequences.”
As long as there is sufficient income to maintain the customer’s lifestyle - including servicing the mortgage debt - reducing or eliminating that debt is a lesser need.
If the customer were to die, their loved ones will need financial support to get them through this difficult period, covering funeral costs and bereavement leave.
Following this logic, reducing or eliminating mortgage debt in the event of death is the last need, and that is what will considered controversial.
“Many readers will recognise the expression ‘hierarchy of needs’ made famous by Abraham Maslow in his theory of human motivation.”
One of Maslow’s assertions was that it’s not possible to address needs further up the hierarchy until or unless lower needs have been satisfied – the same principle applies to the hierarchy of protection needs.
This provides a simple model to guide advisers through the protection maze and consistently deliver good outcomes for customers.
