Copy article

Rising mortgage payments and cost of living crisis see fewer people take out protection

Journalist: Newsteam, Newsteam

ended 28. September 2023

Protection experts have warned that more and more people are ignoring or even cancelling important life, critical illness and income protection policies due to rising mortgage payments and the ongoing cost of living crisis. They also say too many consumers suffer from Superman Syndrome and urged them to avoid using online comparison sites, which one broker has described as a “scourge” and a "false economy".

"As mortgage payments and the cost of living have increased, I have seen a growing number of clients decide to not take out any protection, as they see it as a luxury, even when they have children", said Steven Hargreaves, mortgage adviser at Leeds-based The Mortgage Co.

Simon Bridgland, director at Canterbury-based mortgage and protection broker, Release Freedom, confirmed the trend: “We've seen many people struggling with their bills over the past year or so deep dive into their their outgoings and start culling what they deem to be unnecessary payments. Sadly, and incomprehensibly, some of those considered for the chop are life insurance and other protection policies, which are a must-have if you have bills to pay. Who else is going to pay the mortgage to keep a roof over your head?”

Another reason for people having no protection, according to Elliott Benson, mortgage broker at Leeds-based Sett Mortgages, is Superman Syndrome. "People are absolutely not taking mortgage protection seriously enough. Despite knowing the risks, most people have Superman Syndrome and will not entertain the idea that anything could happen to them, which, of course, it very much can. For convenience's sake, a lot of people are also drawn to auto policies on comparison sites and have no clue what they are getting and are effectively paying for something they will never see a benefit from as opposed to speaking to an adviser and doing it properly.”

And doing it properly often doesn't happen when people go online, according to Sandra Feuell, director of Hatfield-based insurance specialist, Feuell4Life: “It is always obvious to me when a person has bought their life cover online, as the amount of cover has no relation to their specific needs.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, said online comparison sites are a scourge: "Insurance is often an afterthought when it should arguably be a more significant focus than even the mortgage. Most consumers have no idea how complex these products are, and online comparison sites are a scourge. Consumers often aren't aware that insurance providers know that when people jump online, they will typically be searching by price, so they strip out elements of their cover to make them competitive. It's a false economy and can leave people high and dry when they need financial support the most.”

Emma Jones, managing director of Frodsham-based independent mortgage broker, When The Bank Says No, also urged people to avoid online comparison sites, not only to ensure they get the best value product but, just as importantly, a product that will pay out: “Some people will use comparison sites to find the cheapest cover but the quote never takes into account any health declarations. An experienced insurance adviser can take into account health conditions and ensure you're with the best value provider. They will also ensure medical history is declared correctly so that the policy actually pays out when it’s needed."

Meanwhile, Dave Corbett, Head of Protection at Protection 1st, said the simple fact of being British sees many Brits avoid taking out insurance: "It’s tough to know who is at fault for the huge protection gap in the UK. Our Britishness, specifically our “stiff upper lip” approach to life, cynicism and hatred of being sold to are certainly major factors. Add in confusing add-ons from providers looking for market share, the press focusing in on the tiny percentage of cases that don’t pay out, a toothless regulator that allows call centres to peddle out inferior products, the use of poor sales tactics, and the level of paperwork we are required to send out to clients, and you can see why so many people remain uninsured."

As well as urging people to avoid online comparison sites, Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, also advised them to rethink their priorities. Such is its complexity and importance, he also believes protection should be an advised-only product: “Too many homeowners do not fully consider the need for protection. They either think they are untouchable and nothing bad will ever happen to them or simply want to avoid any optional cost, but will still pay hundreds a month on Sky TV and pet insurance. It is frankly baffling. Comparison sites are self-defeating for the industry, too. The two things you need from insurance are, first, that it meets the shortfall and risk needs you have, and second, that it will pay out when needed. Comparison sites do not address either of those factors, focusing only on the sum assured, arbitrary Defaqto star ratings that have no value and, sadly, mostly on the premium. This leads people to take out the wrong types of coverage, for the wrong amounts, with poor quality insurers and then being left in the lurch when the worst happens and the policy they thought would protect them does not pay out. Protection should be an advised-only product to ensure informed decisions are made.”

For Scott Taylor-Barr, director of Leicester-based broker Barnsdale Financial Management, income protection is one of the most important insurance policies people should have on their radars: "There is a saying that we "lease our lifestyle" paying for everything we have and need each month. This all works well as long as, every month, money is paid into our bank accounts. It all goes very wrong, very quickly, of course, when that income doesn't arrive. This makes income protection one of the most important plans that most people can have in place. With the average claim period being over six years, even those with 12 months of sick pay from their employer are still at least 5 years short of the coverage they need. As for price comparison sites, we have seen time and time again that the result for the customer is generally a poor one. With the primary motivating factor for these searches being price, not quality of cover, insurers reduce cover as they chase the lowest premium to be at the top of the search. Only if the client needs to claim do they find out the cover limitations of that cheap price. And then it's sadly too late."

Hargreaves concluded: "I have seen lots of successful death, critical illness and income protection claims over the past 25 years. I have unfortunately seen financial disaster when a life event happens and a loved one is not insured. The most recent successful critical illness claim was a 31-year-old married lady who was diagnosed with cancer. Affordability was an issue so they took 100% life cover and 50% critical illness cover. Upon diagnosis, the critical illness policy paid out, and she is responding well to treatment. 50% of their joint mortgage has been repaid, meaning she can focus on getting well."

This alone is one reason why Michelle Lawson, director at Fareham-based broker, Lawson Financial, believes protection “should be compulsory when taking out a mortgage unless an individual is categorically unable to do so”.

Publishers: additional views below. If you use any, or all, of this content for publication, please credit Newspage.

12 responses from the Newspage community

Copy all

Star Quote
Copy

Premium
Elliott Benson
Owner at Sett Mortgages
People are absolutely not taking mortgage protection seriously enough. Despite knowing the risks, most people have Superman Syndrome and will not entertain the idea that anything could happen to them, which, of course, it very much can. For convenience's sake, a lot of people are also drawn to auto policies on comparison sites and have no clue what they are getting and are effectively paying for something they will never see a benefit from as opposed to speaking to an adviser and doing it properly. I had a self-employed client last year who did not take income protection and then was unable to work for six months soon after completion. Luckily her partner was able to support both however she contacted me later and admitted she wished she had taken it at the time.
Copy

Editor
Emma Jones
Managing Director at Whenthebanksaysno.co.uk
Some people will use comparison sites to find the cheapest cover but the quote never takes into account any health declarations. The issue with this is that, when the quote is applied for based on health issues, this can “rate” the premium, which can vary across every provider. An experienced insurance adviser can take into account health conditions and ensure you're with the best value provider. They will also ensure medical history is declared correctly so that the policy pays out when it’s needed. Having no cover can really put consumers at risk, especially with the current climate of high interest rates and costly energy bills. A protection review costs nothing but can be life-changing when a policy pays out.
Copy

Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
I put a real emphasis on protection from the outset of a conversation with borrowers, and it involves having discussions that can be quite hard-hitting for many. But this gives me peace of mind that clients can make the appropriate decisions when it comes to insurance. Sadly comparison websites are a bit like a shopping cart, where hard facts are not relayed and instead it is up to clients to make their own opinion on what's right for them, normally for the cheapest policy they can find. This approach may not cover the individual or family enough, and is particularly dangerous when a claim is made, only to find relevant cover was not in place from outset. Talk to an adviser.
Copy

Editor
Michelle Lawson
Director at Lawson Financial
Protection, in my opinion, should be compulsory when taking out a mortgage unless an individual is categorically unable to do so. Many don't take protection as it is an afterthought or because they think someone else will help. As brokers, many of us focus on this and can give examples of situations over the years however I am finding more and more customers not interested or just go online. What they don't always take in is that a lot of the online policies have raw minimum cover and it won't necessarily do the job they want it to do as they haven't taken advice or discussed it. That said, policies are becoming more complex and bespoke to individuals which makes it harder for consumers to understand quickly and concisely. Cost is a factor and, while mental health is very much at the forefront, there are many insurers who advocate it, but then penalise the individuals with reduced cover or increased premiums.
Copy

Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
We've seen countless examples of clients who have insurance policies they've set up themselves online that don't actually cover them for the amount, time period, or event that they originally bought it for in the first place. Worryingly, in some cases, we see policies that are possibly worthless, due to people not disclosing things they thought weren't relevant.
Copy

Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
Too many homeowners do not fully consider the need for protection. They either think they are untouchable and nothing bad will ever happen to them or simply want to avoid any optional cost, but will still pay hundreds a month on Sky TV and pet insurance. It is frankly baffling. Comparison sites are self-defeating for the industry, too. The two things you need from insurance are, first, that it meets the shortfall and risk needs you have, and second, that it will pay out when needed. Comparison sites do not address either of those factors, focusing only on the sum assured, arbitrary Defaqto star ratings that have no value and, sadly, mostly on the premium. This leads people to take out the wrong types of coverage, for the wrong amounts, with poor quality insurers and then being left in the lurch when the worst happens and the policy they thought would protect them does not pay out. Protection should be an advised-only product to ensure informed decisions are made.
Copy

Editor
Simon Bridgland
Director at Charwin Private Clients
We've seen many people struggling with their bills over the past year or so deep dive into their their outgoings and start culling what they deem to be unnecessary payments. Sadly, and incomprehensibly, some of those considered for the chop are life insurance and other protection policies, which are a must-have if you have bills to pay. Who else is going to pay the mortgage to keep a roof over your head? When consumers use online comparison tools to purchase cover, great that they are getting some but most of the time it’s incorrect for the need, either under-insuring or even over-insuring. If the latter it’s putting more pressure on budgets when they are potentially stretched already.
Copy

Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
As mortgage payments and the cost of living have increased, I have seen a growing number of people decide to not take out any protection, as they see it as a luxury, even when they have children. I would always provide a bespoke a suite of policies or a single policy based on a person's circumstances and budget, to ensure we cover as much as possible for the budget they provide. I have seen lots of successful death, critical illness and income protection claims over the past 25 years. I have unfortunately seen financial disaster when a life event happens and a loved one is not insured. The most recent successful critical illness claim was a 31-year-old married lady who was diagnosed with cancer. Affordability was an issue so they took 100% life cover and 50% critical illness cover. Upon diagnosis, the critical illness policy paid out, and she is responding well to treatment. 50% of their joint mortgage has been repaid, meaning she can focus on getting well.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
There is a saying that we "lease our lifestyle" paying for everything we have and need each month. This all works well as long as, every month, money is paid into our bank accounts. It all goes very wrong, very quickly, of course, when that income doesn't arrive. This makes income protection one of the most important plans that most people can have in place. With the average claim period being over six years, even those with 12 months of sick pay from their employer are still at least 5 years short of the coverage they need. As for price comparison sites, we have seen time and time again, that the result for the customer is generally a poor one. With the primary motivating factor for these searches being price, not quality of cover, insurers reduce cover as they chase the lowest premium to be at the top of the search. Only if the client needs to claim do they find out the cover limitations of that cheap price. And then it's sadly too late.
Copy

Adam Smith
Founder at Alfa Mortgages
Many people often believe they can secure a more favourable deal by turning to comparison websites. However, they often return once they understand that not all policies are created equal and that they might end up with coverage that fails to provide when they need it most.
Copy

Dave Corbett
Head Of Protection at Protection 1st
It’s tough to know who is at fault for the huge protection gap in the UK. Our Britishness, specifically our “stiff upper lip” approach to life, cynicism and hatred of being sold to are certainly major factors. Add in confusing “add-ons” from providers looking for market share, the press focusing in on the tiny percentage of cases that don’t pay out, a toothless regulator that allows call centres to peddle out inferior products, the use of poor sales tactics and the level of paperwork we are required to send out to clients, and you can see why so many people remain uninsured. But the responsibility falls to those of us who are able to advise our customers, to use terminology they understand, to show them the risk of inaction, and to have the sales processes to make sure they remain aware of the need and have regular reviews throughout their life. This one is on us to find a way.
Copy

Sandra Feuell
Director at Feuell4Life
Customers use online comparison websites as they are often contacted for life cover after going online to get a car insurance quote. It is always obvious to me when a person has bought their life cover online, as the amount of cover has no relation to their specific needs. Often the critical illness cover is arranged with a basic plan rather than a more comprehensive plan and again the level of cover is not suitable. Often they do not have a clear understanding of the details of their cover. An adviser will take the time to discuss their needs and provide cover that is suitable for their circumstances and will take the time to explain the plans to them. There is a vast range of insurance options and all people want is that the plan will pay out when needed. Enabling consumers to arrange this important insurance online themselves diminishes its importance. These are long-term policies so they need to be right first time. These are not plans that are renewed each year.