Peter Wright, financial consultant at CBK, believed that as the amount people are borrowing becomes a higher percentage of their monthly outgoings, IP products were not shifting to accommodate this.
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He believed providers had not addressed this issue as many policies were coming up short and not covering other living expenses.
Wright explained: “A lot of people are now spending 50 per cent of their wages on their mortgage but most IP products only cover 50-55 per cent of income. This means that the policies are coming up short and not insuring anything else. It is always good to get more of someone’s life covered so providers need to redress the levels as it has been at 50-55 per cent for some time.”
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Roger Edwards, product director at Bright Grey, admitted if people were reaching the thresholds then something needed to be done.
“If we are at the stage where 50 per cent is not enough to cover the mortgage then maybe we need to look at it. We’ve always advocated that you need to cover living expenses as well and with people taking on bigger commitments, we may need to stretch cover further. However, if people are overstretching with mortgage payments, they may not be able to afford 50 per cent cover.”
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However, Kevin Carr, head of protection strategy at Lifesearch, believed people were borrowing too much if they were paying out over 50 per cent of their monthly income.
“If people are spending 60 per cent of their gross earnings on their mortgage then it is obvious that they can’t afford the loan. I would question whether this was responsible lending if people are stretching this far, so the issue is not that IP limits are too harsh, but lending is too much.”
