Mortgage protection has value, but expert says a safety net is vital should clients lose their income
Amid rising costs of living, protection and health insurer The Exeter has urged advisers to start discussing income protection with their clients as a priority.
Jamie Page, head of strategic partnerships at The Exeter, said that as people currently remortgaging are often taking on higher costs to free up equity, it’s important that advisers discuss wider protection options with their clients.
“Mortgage protection has value, but its coverage can only stretch so far. Clients need a comprehensive safety net should they lose their most important asset – their income,” Page stressed.
The latest LMS Monthly Remortgage Snapshot reported that 46% of borrowers remortgaging were taking on larger loans, increasing their mortgage repayments by an average of £224 a month.
Many of these clients will take out mortgage protection insurance, but The Exeter is urging advisers to consider the broader benefits of income protection as a more comprehensive safety net if illness or injury prevents a client from working.
Compared to mortgage protection, which pays a lump sum to cover the outstanding mortgage debt should the homeowner die, income protection provides a regular monthly benefit that can be used for mortgage repayments, household bills, and discretionary spending.
According to a recent report by Yorkshire Building Society, nearly one in four UK savers have already dipped into their savings to cover monthly living costs.
With The Exeter’s 2021 claims data showing that the average claim duration was 101 weeks, savings alone are simply not enough to cover outgoings if someone cannot work.
The average age of a UK first-time buyer is 32.4 years, according to Halifax, while the average age of an income protection claimant at The Exeter in 2021 was 37.3. This means that the point where an average first-time buyer remortgages from a five-year fixed rate product is also the age they are likely to find themselves unable to work, struggling not only with mortgage repayments, but wider bills and a rising cost-of-living too.
At present, 75% of the mortgage market is on fixed rate mortgages, amounting to 6.75 million borrowers. As mortgage terms end and borrowers try to lock into a new rate for a high-inflation and higher interest environment, advisers must ensure they are not only discussing the benefits of mortgage protection with clients but income protection too.
“Our figures show that the average claim duration for a full-term income protection policy – 101 weeks – means clients can expect a prolonged period where their income could be impacted due to illness or injury. During this time, making up a shortfall in income can be challenging and well beyond the scope of many people’s savings,” Page explained.
“Advisers must therefore discuss the expanded benefits of income protection to help maintain their clients’ financial security.”
