Loan protection should be a standard part of the mortgage process, but too many clients are never offered the opportunity. MPA and ALI Group look at how brokers can make a difference
Loan protection should be a standard part of the mortgage process, but too many clients are never offered the opportunity to have this. MPA and ALI Group look at how brokers can make a difference
Of all the diversified income streams available to brokers, loan protection is perhaps the least diverse. As Gabrielle Moscati, national sales manager at ALI Group, puts it, “this is diversifying when you’re not diversifying. You’re dealing with the very same client and still addressing their original need”.
For many brokers, offering loan protection seems obvious. Multiple Australian Mortgage Award-winning broker Peita Davies of Choice Home Loans typifies this view. She argues that “it’s important for brokers to understand when talking to their clients that it’s not a bolt-on, it’s not an add-on sale; it’s part of the process. If you are going to go into debt, then make sure that debt is protected”.
Yet the numbers suggest quite the opposite. Ninety per cent of brokers did not offer their clients any insurance, other than LMI, during their last appointment, ALI Group claims. Of the 10% of clients who were offered insurance, just half were offered loan protection. This is despite consumers being more likely to take out insurance through a broker than through a bank, according to research from CoreData.
Over 300,000 mortgage holders aged between 20 and 49 have loan protection, which means 1.9 million do not.
Underinsurance in Australia
The low level of loan protection – and the challenge for brokers offering this product – can be traced back to consumer confusion. “Australia is really underinsured,” Moscati explains. “We actually rank 16th in the world for life cover density and penetration.”
Many consumers believe their superannuation fund will cover mortgage repayments in the event of illness or injury, when in fact it may not. Nor will it necessarily cover involuntary unemployment, and the level of life cover it offers (an average of $200,000, according to ALI) may be far from enough to pay off the mortgage, leaving the borrower’s estate to pick up the bill.
Traditionally, those have who wanted more certainty would visit a financial adviser. An adviser can offer more sophisticated, personalised advice with higher levels of cover, but this comes at a price. Premiums can be extremely high, over $200 a month, and the process often involves inconvenient medicals, putting young and healthy borrowers off this approach. Furthermore, unlike brokers, advisers charge for their time.
Loan protection
Loan protection offered by mortgage brokers provides a middle ground. Premiums are lower – around $50 a month – and the policy can be personalised for a client’s desired level of cover. ALI’s loan protection offers three benefits, the first of which is three months’ benefit for involuntary unemployment, a major concern for clients.
ALI’s loan protection also covers 11 serious medical conditions, including cancer, heart attacks and strokes, with no limits on how the money is spent – clients have used funds for carers, cleaning or even a holiday. Finally, the death and terminal illness benefit provides a lump sum to be paid to the joint owner or estate, not the lender, and can be used for any purpose. An optional extra is accidental injury benefit, which provides benefits in the event of a disabling injury, such as a sports accident.
A three-stage process
For clients, the key attraction of loan protection is not the product itself, however; it’s the ease with which it can be acquired.
After a quick accreditation and training process taking around three hours, brokers can offer loan protection. Much of the information required for the process comes from a broker’s fact-find, a necessary first step, Moscati says. “There’s no point in presenting a solution if you haven’t identified the need.”
Presenting a loan protection offer and getting the client a quote is then an extremely quick process. No medicals are required; after a five-minute conversation the broker can obtain a quote online, personalised to the client’s budget, without any signatures being needed.
Crucially, clients and the broker will be sent an email confirming whether they have chosen or declined to take out mortgage protection. In an environment of increasing regulation this gives the broker a vital audit trail, Moscati says. “If you get the client coming back and saying, ‘Why didn’t you offer us the opportunity to protect ourselves?’, you have a record that you’ve done that.”
With that, the broker’s role largely comes to an end. Brokers are not required to play a role in claims, and loan protection is attached to the borrower, not the loan, meaning it carries on despite refinancing. The broker’s commission of around $500, although this is variable, therefore stems from around 15 minutes of upfront work.
Finally, loan protection offers another benefit to the broker: peace of mind. “You can’t take out liabilities without discussing the risks involved,” says Loan Market broker Phil Rogers. “It scares me to think that life is short and bad things do happen to good people... and I don’t want that client to ever be one of my clients.”
Of all the diversified income streams available to brokers, loan protection is perhaps the least diverse. As Gabrielle Moscati, national sales manager at ALI Group, puts it, “this is diversifying when you’re not diversifying. You’re dealing with the very same client and still addressing their original need”.
For many brokers, offering loan protection seems obvious. Multiple Australian Mortgage Award-winning broker Peita Davies of Choice Home Loans typifies this view. She argues that “it’s important for brokers to understand when talking to their clients that it’s not a bolt-on, it’s not an add-on sale; it’s part of the process. If you are going to go into debt, then make sure that debt is protected”.
Yet the numbers suggest quite the opposite. Ninety per cent of brokers did not offer their clients any insurance, other than LMI, during their last appointment, ALI Group claims. Of the 10% of clients who were offered insurance, just half were offered loan protection. This is despite consumers being more likely to take out insurance through a broker than through a bank, according to research from CoreData.
Over 300,000 mortgage holders aged between 20 and 49 have loan protection, which means 1.9 million do not.
Underinsurance in Australia
The low level of loan protection – and the challenge for brokers offering this product – can be traced back to consumer confusion. “Australia is really underinsured,” Moscati explains. “We actually rank 16th in the world for life cover density and penetration.”
Many consumers believe their superannuation fund will cover mortgage repayments in the event of illness or injury, when in fact it may not. Nor will it necessarily cover involuntary unemployment, and the level of life cover it offers (an average of $200,000, according to ALI) may be far from enough to pay off the mortgage, leaving the borrower’s estate to pick up the bill.
Traditionally, those have who wanted more certainty would visit a financial adviser. An adviser can offer more sophisticated, personalised advice with higher levels of cover, but this comes at a price. Premiums can be extremely high, over $200 a month, and the process often involves inconvenient medicals, putting young and healthy borrowers off this approach. Furthermore, unlike brokers, advisers charge for their time.
Loan protection offered by mortgage brokers provides a middle ground. Premiums are lower – around $50 a month – and the policy can be personalised for a client’s desired level of cover. ALI’s loan protection offers three benefits, the first of which is three months’ benefit for involuntary unemployment, a major concern for clients.
ALI’s loan protection also covers 11 serious medical conditions, including cancer, heart attacks and strokes, with no limits on how the money is spent – clients have used funds for carers, cleaning or even a holiday. Finally, the death and terminal illness benefit provides a lump sum to be paid to the joint owner or estate, not the lender, and can be used for any purpose. An optional extra is accidental injury benefit, which provides benefits in the event of a disabling injury, such as a sports accident.
“It’s not a bolt-on, it’s not an add-on sale; it’s part of the process. If you are going to go into debt, then make sure that debt is protected” - Peita Davies, Choice Home Loans
A three-stage process
For clients, the key attraction of loan protection is not the product itself, however; it’s the ease with which it can be acquired.
After a quick accreditation and training process taking around three hours, brokers can offer loan protection. Much of the information required for the process comes from a broker’s fact-find, a necessary first step, Moscati says. “There’s no point in presenting a solution if you haven’t identified the need.”
Presenting a loan protection offer and getting the client a quote is then an extremely quick process. No medicals are required; after a five-minute conversation the broker can obtain a quote online, personalised to the client’s budget, without any signatures being needed.
Crucially, clients and the broker will be sent an email confirming whether they have chosen or declined to take out mortgage protection. In an environment of increasing regulation this gives the broker a vital audit trail, Moscati says. “If you get the client coming back and saying, ‘Why didn’t you offer us the opportunity to protect ourselves?’, you have a record that you’ve done that.”
With that, the broker’s role largely comes to an end. Brokers are not required to play a role in claims, and loan protection is attached to the borrower, not the loan, meaning it carries on despite refinancing. The broker’s commission of around $500, although this is variable, therefore stems from around 15 minutes of upfront work.
Finally, loan protection offers another benefit to the broker: peace of mind. “You can’t take out liabilities without discussing the risks involved,” says Loan Market broker Phil Rogers. “It scares me to think that life is short and bad things do happen to good people... and I don’t want that client to ever be one of my clients.”
