Cover Up
THE MORTGAGE EDGE - 21ST AUGUST 2002
The life of the broker is no walk in the park. What with regulation, endowment scandals, pension mis-selling and having to cram for CeMAP, you need to make sure your won house is in order nowadays before you start thinking about your clients’.
And you have to be creative too. Low interest rates and high house prices won’t last forever and even if they do, you don’t get the same return arranging a repayment mortgage as you did with an endowment-backed home loan. You know that better than anyone.
So why is it that there is a hug unsaturated and lucrative market out there that hasn’t seen a significant increase in the last couple of years, despite a Government initiative to that end?
We’re talking about protection insurance – essential for your clients and a nice little earner.
Dangerous game
Recent research commissioned by Scottish Provident shows there has been little change in the percentage of mortgage holders with protection insurance over the last two years.
Life insurance is the most popular with 63% of mortgage holders having this cover. But unemployment cover has remained static since February 2000 at just 23% of mortgage holders. This is particularly worrying given the fact that over one in three of those questioned believes that the economic condition of the country will get worse over the next 12 months, and just under a quarter of all those working are concerned about the possibility of being made unemployed.
If these people are worried about unemployment, why aren’t they covered? Nick Kirwan, head of protection, product development, at Scottish Provident says: “Life insurance is always sold at the point of mortgage purchase. But income protection policies can be forgotten at this stage, or finances so stretched to buy the property that the insurance simply can’t be afforded.
“And if it’s not taken then, the customer is likely to forget about it – most of us have other priorities in our lives.
The survey also reveals that 70% of mortgage holders have not critical illness cover and 83% have no disability cover.
But if the importance of correct protection insurance was explained to your clients they may be convinced. Its worthwhile contacting your existing client base and suggesting a review of their finances, including their protection insurance. Show your clients the need for this cover by reminding them of the very limited State help available should they become unable to work.
With new customers, it is vital you give comprehensive and clear advice for your sake as well as theirs.
Simon Burgess, of Burgesses Insurance, warns that you need to sell the correct protection insurance in order to protect yourself. “There are two reasons why you should get clued up on protection,” he says, “Firstly, you can make a lot of money, more than you could with endowments. Over the lifetime of a mortgage payment protection insurance policy you could make up to £3,000, £1,000 for Permanent Health Insurance and £1,000 for Critical Illness, and since mortgage payment protection insurance and PHI are currently disclosure-free products your commission remains strictly between you and the providers.
“The other big reason is that you could be sued by your client for negligence if you fail to advise them to take out a suitable mortgage payment protection insurance policy. This may sound extreme but there have been cases taken to court successfully. It is as dangerous to undersell accident, sickness and unemployment protection as it is to mis-sell it. Don’t be caught out.
The burgeoning payment protection insurance market is something you cannot ignore. It is a potential gold mine and probably the only way you can maintain the income of the endowment boom years. Your client’s need the best possible advice about payment protection insurance products with regulation around the corner make sure you’re in a position to give it.
