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, according to Halifax, while the average age of an income protection claimant at The Exeter in 2021 was 37. 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 6.75m 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.
Jamie Page, Head of Strategic Partnerships at The Exeter, comments: “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. Amidst the rising cost of living, clients need a comprehensive safety net should they lose their most important asset - their income.
“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. Advisers must therefore discuss the expanded benefits of income protection to help maintain their clients’ financial security”.
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