Although the protection market is enjoying something of a purple patch at present – sales hit a nine-month high in May according to the latest figures – recent research by Bright Grey has indicated that there is still massive potential for activity to increase far beyond current levels.
The provider found that half of all Britons are concerned they wouldn’t be able to maintain their standard of living if they were to lose their main source of income, yet you can bet your bottom dollar that far less than 50% of individuals actually have income protection (Bright Grey estimate the figure at 40% but that sounds somewhat generous to me). When you factor in stretched affordability meaning homeowners are paying significant percentages of their monthly income in mortgage repayments, then it doesn’t take a genius to work out that unforeseen circumstances could plunge many people into instant difficulty.
The global financial crisis has had an interesting effect on attitudes towards protection. While the testing economic climate has meant that people probably need more cover than ever – particularly given employment instability – some people have made the dangerous decision to save money by skimping on insurance. This may save individuals the monthly premium, but it could prove to be a truly false economy should those same people find themselves unemployed with no way of paying the bills.
Indeed, Bright Grey goes as far as to tag those aged 18-34 ‘Generation Recession’ given that most people in that age bracket will have spent most of their working lives against a backdrop of economic uncertainty, so it may well be that they view it as the norm and are not worried enough about their prospects therefore deciding that protection is unnecessary.
This is where financial advisers can come in and help ensure their clients are prepared for every eventuality. No-one is suggesting they scaremonger them into taking out an insurance policy, but by presenting them with research such as Bright Grey’s it may well make them realise for themselves that their savings – if they have any – would be insufficient to live on for any length of time were they to lose their jobs.
None of us like to envisage the axe looming over our own heads, but the more financial commitments people take on, the more important it is they give themselves a cushion should things not pan out as they hope. This is just one reason why mortgage brokers have a fantastic opportunity to help satisfy their clients’ protection needs when arranging their home loans. When assessing suitability and affordability, it is typical that the conversation will include what level of savings clients have and how prepared they are for developments such as interest rate rises, so it is a natural extension of this to discuss what types of cover could help them in different circumstances. And with the research indicating that younger people are the most concerned about potential financial pitfalls – yet also likely to be less aware of how insurance can soften any blow – then advisers can play a vital role in educating and protecting a new generation.
Richard Adams is managing director of Stonebridge Group