The reason for someone bringing in their employment contract is that so many people feel they have no need to take out IP as they believe that either their company or the state will look after them
Mark Graves is director of Pink
Do you ask your clients to bring in their employment contract to their mortgage interview?
It has recently been well publicised that Pink has requested each of its adviser members do exactly this. The reason is that while income protection (IP) is the insurance policy that is most claimed on, only about 5% of people who are sold a mortgage, also have an IP policy.
I have been overwhelmed by the response of the industry to this initiative, which has been hugely positive – especially those already convinced of the need to ensure someone’s income is protected by more than statutory sick pay.
However, it does highlight just how much still needs to be done when you read some of the industry comments where people just haven’t been able to differentiate between income protection and protection in general.
Some people just haven’t understood why we are asking borrowers to bring their employment contracts as well as any other IP policy they have. While signing a disclaimer is not new, asking someone to bring in these contracts as standard is – and there is a very good reason for that.
While not wanting to teach your grandmother to suck eggs (one day I will find out what’s exactly involved in that!) if someone loses their income, they are unable to pay every other bill that depends on it – including their mortgage, their life assurance as well as anything else needed on a daily basis. So I consider it a moral obligation that every mortgage adviser at the very least has a conversation about just how much, or how little, someone is likely to receive if they were unable to work.
The reason for someone bringing in their employment contract is that so many people feel they have no need to take out IP as they believe that either their company or the state will look after them. When we put this to the test, our advisers confirmed that the vast majority of clients had no idea how long their employers would pay them if they were off sick from work.
We feel it is our moral responsibility to make sure our clients fully appreciate the risks involved with not being covered. Imagine the realisation for someone earning £40,000 for example.
Their current take home pay after tax and NI is £580 a week. If they were suddenly to become ill, they would receive just £87.55 statutory sick pay per week, undergoing the equivalent of an 85% pay drop – not counting the emotional strain of actually being ill at the same time.
We seem to have a total disconnect visualising what insurance protects us against, it is almost like we have an off button that brings up blank images to fend off the thought. So the challenge is there for all to see.
However using figures in black and can lead to a very different conversation regarding the benefits of IP and can change the perception as to why someone needs it. All of a sudden it stops being a painful sell and people will thank you for providing them with a solution.
You never know you might even get round to covering yourself. I doubt that mortgage brokers are any different from the clients they see and expect most are in total denial anything will happen to them. If I were a betting man I would say no more than 10% of brokers have an income protection policy.
Which raises a secondary issue – how can you sell something that you don’t believe in enough to buy it yourself?
Of course not everyone will want to take it out, even provided with the facts; but at the very least we all owe it to our clients to have the conversation with them and make them aware of the consequences.
