It’s a generally held view that most people first consider their protection needs when they’re taking out their first mortgage.
National adviser firms and networks, over the last few years, have sharpened their focus on ensuring as many of these first-time buyers have some form of protection. That could be life, critical illness, or income protection. Or, in some cases, a combination of these.
Even so, a massive 40% of homeowners have no life cover and 71% have no critical illness cover1. While addressing this dilemma would seem an obvious place to focus the industry’s attention, my thoughts are that there’s maybe an even more urgent need to be addressed first. Family protection.
This really should be a golden age for advisers. We’ve seen adviser numbers continue to decline since the 2000s whilst the demand for mortgage, protection, pension and wealth advice continues to grow. Yet protection sales have seen only relatively modest growth in recent times. I often speak to advisers that were schooled at the likes of Allied Dunbar, or the home service teams of Royal London and Prudential. They still recall fondly the protection training they received back then, and how effective they were in convincing families to protect themselves. While I don’t expect to see a return of provider-led direct sales teams, perhaps some of what worked back then can be reinvented to help the advised sector protect more families.
Demographic changes in the UK are making the need for family protection more important. HSBC UK’s annual ‘Beyond the Bricks’ survey has found that more than half of people looking to buy their first home already have a family to support2. So, increasingly, families are being created and built before they’ve applied for their first mortgage. To me, your duty as a parent is to ensure your family is protected. So, as an industry what are we doing to engage young families before they decide to get on the housing ladder?
To make this more personal, I’ll use myself as a case study. In my 20s I thought I was someone who would never need a protection policy. I was fit and healthy, played a range of sports, had a decent job and didn’t really want for anything. I didn’t visit a hospital once in that decade, and I certainly didn’t expect to anytime soon. My first son was born when I was 28, and I took out my first mortgage the year before that, so I had protection in place.
Fast forward to my 30s, and it’s not been so simple. I needed a couple of hip operations in my early 30s. Thankfully, it was a straightforward recovery, aided by RED ARC who helped tremendously. Without needing to claim on my policy, I was still able to use their services – something that we don’t shout about loudly enough.
By 34, I had three boys, but because I had no adviser doing any kind of regular review, my original protection policy just continued. My saving grace was that my first mortgage was interest-only, and I opted for term assurance for life and critical illness that increased by 10% each year. So, my protection actually remained relevant and provided sufficient cover to protect my now increased mortgage following a house move.
Shortly after reaching 37, I needed to make a claim for critical illness. And, without doubt, the stress and worry of this situation would be far worse if I hadn’t had protection. I’ve been in hospital more times than I care to remember, and I wouldn’t have predicted this when I was in my late 20s.
We might think that today’s 20-somethings are so tech savvy that they’ll have no problem in jumping online, sourcing some life cover, and putting it in place in time for the arrival of their firstborn. I seriously doubt it. Some might have the nous, but I expect they might know what they want, not what they really need. Do they know where to start? The pitfalls to avoid? Or are they likely to be attracted to cashback offers and free giveaways? Moneysupermarket and Compare the Market are currently offering customers up to £180 in Amazon vouchers should they buy life insurance directly online.
Same could be said for 30-somethings. Some might self-serve, but the problem is that most don’t consider themselves suitable or eligible to be a client for a Financial Adviser. Where do they go? They’re probably just getting used to the fact that they now have to contribute to a company pension scheme, so probably get slightly nauseous at the thought of walking into an adviser’s office and having to explain why they can’t afford to save a penny more. To me, that’s a clear signal that they need protection. What would they fall back on if they’re already struggling with their monthly finances?
So, I think the answer is that we need adviser firms to be searching out first-time parents and giving them access to the advice they need. And I’m not suggesting loitering outside maternity wards or dropping your business cards into BOUNTY packs. It might be that existing clients are a good place to start. I’m sure that advisers would know when a client becomes a grandparent, so there’s an opportunity to talk about getting in front of their son/daughter. The grandparent might even like to help fund the policy.
Or maybe we need advisers to get closer to estate and letting agents and specifically target 'Generation Rent'. Let’s face it, if you have a baby on the way, it’s unlikely your penthouse flat or studio apartment is going to cut it. You need space – lots of it. These families aren’t ready to buy, but they do need a bigger house. Why wouldn’t you want to be talking to them now about establishing some family protection? I’m sure this would make the family more likely to want to protect their mortgage when they get around to saving that deposit.
Products like family income benefit for life cover, or even critical illness cover can prove to be extremely cost effective - and a great starting point.
In my eyes, the biggest benefit for advisers is the satisfaction that another family has some protection in place as they move forward in life not knowing what’s coming next. And young families tend to mix with other young families, so referral opportunities are endless.
I consider myself fortunate that I had the sense to protect myself for critical illness. But I still think I could have done more. I claimed in my 30s and this was not part of my life plan. Getting more young families protected must be a priority for the industry, and I’d be really interested in any views you might have on how this could be effectively done?