A recent conversation highlighted for me the potential protection gap for first-time buyers.
An old friend’s son and his girlfriend are first-time buyers and, before viewing any properties went to see a mortgage adviser to discuss their monthly budget and establish their borrowing potential. The mortgage adviser provided them with an indication of how much they can borrow, but used all of their maximum monthly budget on just the mortgage payment amount. No detailed conversation took place at this point about their protection needs or the potential monthly budget required to support this, but they have been advised that the firm’s protection specialist is available to discuss their protection needs once an application has been submitted.
So, as first-time buyers, they are naively viewing properties at the top of their budget.
To put in place some basic term assurance potentially wouldn’t push the budget and the client will recognise the need to have this in place. However, to recommend a full menu plan covering critical illness and, most importantly income protection, could become a more challenging conversation as you may encounter budget restrictions.
Using LV’s Risk Reality calculator the likelihood of a young couple (aged 28, non-smokers, retirement age of 67), needing to claim on their life insurance would be 17%, however, the likelihood of them being unable to work for two months or more is 70%. This is easy to access and equally easy to understand the risks of not doing anything, and in my view it is important to have the conversation earlier rather than later.
It’s human nature to view the best property you can afford or to spend money on kitting out your new home. Spending further monthly budget on an insurance cost you know you need but feel won’t happen to you will always become a more challenging conversation. As a network we encourage our advisers to have a fully holistic conversation as part of their initial fact-finding process and offer fully protected mortgage recommendations.