At its most basic it assumes that everybody who could possibly buy an insurance product takes out every type of cover it’s possible to buy, but this gives us an unrealistic picture, so before we focus on how to reduce the amount of people who are underinsured it’s important to look at exactly who we are targeting and which product they need.
Single people with no mortgage, for example, are unlikely to need to take out life assurance if they do not have another person to protect. Critical illness cover and income protection are therefore the key areas to discuss.
Replacing the income of a breadwinner for a spouse and family in the event of death is much more relevant than filling a protection gap. Regardless of whether they have a mortgage or not the income is what needs replacing, no-one I know can just carry on as normal just because the mortgage is paid off. It might benefit the lender but the money worries for the family do not go away.
Our challenge is the mortgage is the most likely access we have to a client and probably the only real occasion when we have their undivided attention. However the workplace through a knowledgeable boss who wants a well cared for workforce is not a bad alternative.
The MMR focused heavily on stress testing to make sure people could still afford their mortgage if interest rates went up, but a major omission was the fact that it didn’t also look at how someone would pay their mortgage if they lost their income. I believe however that all advisers have a moral obligation to ensure that everyone to whom they provide a mortgage is given full financial advice so they know about the products available to help keep them in the home they have worked so hard to afford – even were the worst to happen.
Within Pink network we believe that everyone who comes for a mortgage interview should also receive advice on their need for protection at the very first interview. It is for this reason that all of our advisers now ask every mortgage client to bring in a copy of their employment contract detailing their employer’s sickness and absence policy and details of any ‘death in service’ benefit they receive. They must also bring in details of any income protection, critical illness and life cover that they already have so that both the client and the adviser can see exactly what money they would have if they were ill or a family member died.
There is a ‘head in the sand’ approach in the UK where most people either think that the state or their employer will look after them if they were sick. Most people have absolutely no idea of just how little they would receive if they became ill or if their partner died, so almost the only way to encourage people to take out their own policies is to highlight exactly how little they would receive and do the calculations to see if they could live on that or not.
Personally I do not think that it helps to highlight that more than 50% of people do not have the policy that you are trying to sell as people take comfort in the fact that they are part of the majority. While it may be illuminating to let people know just what the probability is of them getting a serious illness and it can be used in an adviser’s arsenal of reasons why someone should be protecting their income, most people have an inbuilt mechanism to believe that it will never happen to them.
Of course nobody is obliged to insure themselves; the crime is send people away in ignorance. Going the extra mile to help a client to visualise a future without income, would in many cases produce a more secure family outcome.
It is true, a protection policy is not an easy sell, as no-one wants to face up to an unhappy ending.
So it does have to be ‘sold’ as it is rare someone will seek you out. Protection has no feel good factor for the customer the best you can achieve is peace of mind. Peace of mind is what I want advisers to experience; it is morally right that if you arrange for someone to take on the largest debt they are likely to ever take that you also ensure they will not end up on the street due to illness, death or unemployment.
So let’s keep it simple and start with a small step that may have a big effect on that protection gap. Every financial adviser needs to face up to this moral obligation; protecting the client’s income has to be part of the job. Do not fire statistics at them; keep it personal to them and what you can do to solve their issues not the world at large.
