But too often this important task is either ignored or not fully addressed with clients, potentially leaving them, their family and their home at risk.
So, Mortgage Solutions asked this week’s Marketwatch panel, how brokers sell life insurance and income protection to customers.
A mortgage is the largest financial commitment many people will make, placing a responsibility on the adviser to ensure the customer is aware of the risks, and well-informed about how this can be mitigated through protection insurance.
When an adviser is first doing their disclosure it is an opportunity to outline the services on offer and explain that even though the customer’s main aim is to buy a home, they also need to make sure they can continue to pay the mortgage should they become seriously ill.
Using a risk calculator is a good way of giving the customer an independent view of ‘what happens if?’
This scene setting can help to open up conversations about potential protection solutions.
Another good place to bring protection into the conversation is when talking about stress testing the mortgage.
A customer may be able to afford the mortgage should rates and costs increase, but this is only because they have their income. So ask the question as to the circumstances in which their income could be affected?
What is their financial plan if they or someone in their immediate family became seriously ill? How would they cope? The bottom line is that it is important for their income and family to be protected in both life and death.
Advisers should also look to their network or mortgage club for support, such as protection training workshops, which can help advisers find and develop their preferred style for talking to clients about protection and the solutions available.
Ultimately it is about creating good healthy habits and doing the right thing for every customer all of the time.
Lee Wilson, senior key account manager at Beneficial Life
Many homeowners in Britain are not prepared in the event of long-term sickness, accident, ill health or death.
A recent survey from Royal London found that 42% of mortgage holders do not have a life insurance policy in place, 71% have no critical illness cover, and 81% do not have income protection in place.
The main reasons, according to the survey, for not taking a protection policy out is the client assumes that the cost will be expensive, they don’t need it, and in a lot of cases the clients understand the need for protection but have not been given the correct advice, if any.
Many people realise that having a policy in place would provide valuable peace of mind.
Taking out a policy is something that never quite gets to the top of their priority list; 20% of full-time working people questioned for the survey said they would benefit from having some sort of protection, but had not got around to arranging it.
So, the challenge for mortgage advisers is understanding what protection products are available, what is the best advice for their clients, and the skills and confidence to advise on protection products.
I focus on understanding the client, their family and their needs.
A comprehensive fact find gives me the information to build a protection recommendation and the ability to demonstrate the client’s requirements should the worst happen.
The client may not always take out the full recommendation however they will have a full recommendation they understand and can use this to choose a package that suits their budget.
A mortgage is the biggest personal guarantee that a person will probably ever commit to in their lifetime – what’s more, it’s secured against their home.
More often than not, people fail to understand the importance of an insurance policy and it is the adviser job to explain why a client should take one out.
The role of a mortgage adviser is not to sell insurance – they simply will not succeed if they approach it with a hard-sell attitude.
Mortgages and insurance policies go hand-in-hand, and one should not exist without the other.
Therefore, what a client needs to understand, and what an adviser should explain, is that they are insuring for ‘what-if’ circumstances and it is their responsibility – and their duty to their family – to ensure this is done.
Forget about clever sales tactics, all an adviser should remember, and emphasise during the mortgage application process, is that the mortgage will help a client buy their home – the insurance will make sure that they, and their family, can keep it under any circumstances.