WHY MORTGAGE CLIENTS NEED INCOME PROTECTION
WHY MORTGAGE CLIENTS NEED IP HOUSEKEEPING • Questions can be submitted in the ‘Ask a question’ box below the main webinar feed • If you encounter any technical issues use the support option and then select ‘viewers’ and someone from BrightTALK will help you out 2
WHY MORTGAGE CLIENTS NEED IP AGENDA • State of the income protection nation • Positioning the protection need to mortgage clients • Pre sales underwriting • How much cover can my clients have? • Illustrating the income shortfall • Designing a protection solution for mortgage clients • Finding the budget for self employed clients 3
WHY MORTGAGE CLIENTS NEED IP LEARNING OBJECTIVES At the end of this webinar you should… • Understand the continuing need to mitigate the problems caused by loss of income through sickness and incapacity • Be able to position talking points to highlight protection risks to your mortgage clients • Describe the features and benefits contained within an Income Protection solution • Be able to compile a multi benefit protection recommendation to your mortgage clients, focusing on different areas of protection risk 4
STATE OF THE INCOME PROTECTION NATION
STATE OF THE NATION BEING OFF WORK SICK • Its estimated that people in the UK take 137.3 million days off work sick each year * • Often, this is for minor issues • Sometimes the sickness is more serious • Some people stay off work for long periods of time • Some people never return to work again off work sick Minor Serious Source - https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductiv ity/articles/sicknessabsenceinthelabourmarket/2016
STATE OF THE NATION CLAIMANTS OF STATE BENEFITS Data from the Department of Work and Pensions shows that between October 2013 and September 2018… • 4.3 million people started an Employment & Support Allowance Work Capability Assessment • ESA is a state benefit which can be claimed if the claimant is unable to work • Employed claimants cannot begin their claim for ESA until their 28 weeks of statutory sick pay has ended • The claim form is 64 pages long Source: Department of Work and Pensions - Work Capability Assessments, Mandatory Reconsiderations and Appeals - June 2019 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourprodu ctivity/articles/sicknessabsenceinthelabourmarket/2016 7
STATE OF THE NATION STATE BENEFITS • Another state benefit which could be claimed by people with a mortgage is SMI – Support for Mortgage Interest • (SMI) is designed to help people pay their mortgage payments should they lose their income Source - Gov.uk/support-for-mortgage-interest/what- 8 youll-get - Rates as at June 2019
CLAIMING STATE BENEFITS SUPPORT FOR MORTGAGE INTEREST (SMI) • SMI provides benefit based on a • SMI cannot help pay anything current interest rate of 2.61% towards insurance policies or missed mortgage payments • The maximum limit is for loans (arrears) of up to £200,000 • The normal waiting period is 39 • To qualify for a Support for weeks Mortgage Interest (SMI) loan you usually need to be getting • SMI benefit is paid as a loan one of the following: which means it needs to be repaid • Income Support • Repayment of SMI also includes • Income- based Jobseeker’s interest when you sell or Allowance (JSA) transfer ownership of your • Income-related Employment home and Support Allowance (ESA) • The current interest rate is 1.3% • Universal Credit and is subject to changes • Pension Credit 9 Source - Gov.uk/support-for-mortgage-interest/what-youll-get - Rates as at June 2019
STATE OF THE PROTECTION NATION SAVING FOR A RAINY DAY… • Having sufficient savings can be used to replace lost income • However, according to a Money Advice Service 10.7 million adults in the UK have NO savings • This is 21% of the population • People who do save have an average savings balance of £4,212.40 Source: Building the Financial Capability of UK Adults – 2018 – Money Advice Service https://masassets.blob.core.windows.net/cms/files/000/001/147/original/Adult_Fin ancial_Capability_-_Survey.pdf Source - https://www.independent.co.uk/news/uk/home-news/british-adults- savings-none-quarter-debt-cost-living-emergencies-survey-results-a8265111.html - 10 March 2018
STATE OF THE PROTECTION NATION BEING OFF WORK SICK • The average full time income in the UK in 2018 was £29,588 * • Rounded up to an annual income of £30,000 this equates to net take home pay of £1,995 per month Source - https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earni ngsandworkinghours
STATE OF THE PROTECTION NATION AVERAGE INCOMES AND OUTGOINGS • Lets say someone earning the UK’s average annual income (£30,000 p.a.) with the average level of savings lost their income through sickness… • Let’s say their average monthly outgoings were £1,500 each month Is income replacement through savings a viable solution? 12
STATE OF THE PROTECTION NATION REPLACING INCOME WITH SAVINGS 5000 4000 Savings 3000 Savings 2000 1000 1500 1500 1212 0 Month 1 Month 2 Month 3 Month 4 -1000 -288 -2000 -1788 -3000 13 Reference: 4 month income loss analysis - assuming average income of £30,000 per annum and average savings of £4214. Monthly outgoings of £1,500
STATE OF THE PROTECTION NATION REPLACING INCOME WITH SAVINGS 5000 4000 Savings 3000 Savings 2000 1000 1500 1500 1212 0 Month 1 Month 2 Month 3 Month 4 -1000 -288 -2000 -1788 -3000 All savings are depleted in the 3 rd month of sickness 14 Reference: 4 month income loss analysis - assuming average income of £30,000 per annum and average savings of £4214. Monthly outgoings of £1,500
STATE OF THE PROTECTION NATION HOW LONG DO IP CLAIMANTS CLAIM? • Royal London’s claims statistics 2019 reports that the average length of time for Income Protection claims is 9 years and 11 months • That’s the loss of 119 paydays 15 Source: Royal London Claims Statistics 2019 https://adviser.royallondon.com/globalassets/docs/protection/brp8p10004-our-claims-statistics.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 Royal London’s State of the Protection Nation 2019 surveyed over 2000 people 16 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 Royal London’s State of the Protection Nation 2019 surveyed over 2000 people 18 – 35 years old Young singles / home sharers Private renters 56% …said they would last less than 3 months on their savings and investments if they couldn’t work due to illness or injury. 17 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 Royal London’s State of the Protection Nation 2019 surveyed over 2000 people Working Renters (with Private Landlords) 62% …said they wouldn't last three months financially if they couldn’t work due to illness or injury. 18 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 Royal London’s State of the Protection Nation 2019 surveyed over 2000 people • Consumers believe they're almost twice as likely to die during their working life than to have an accident that prevents them from working. • They also think that they are more likely to die than to suffer a critical illness during their working lifetime 19 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 Royal London’s State of the Protection Nation 2019 surveyed over 2000 people • Almost a quarter of workers (22%) feel they could only survive financially for a month or less if their income stopped. 20 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
ROYAL LONDON STATE OF THE PROTECTION NATION 2019 21 Source: Royal London State of the Protection Nation 2019 https://adviser.royallondon.com/globalassets/docs/protection/state-of-protection-nation.pdf
INCOME PROTECTION TOTAL SALES BY VOLUME 2014 TO 2018 160,000 148,498 140,000 121,084 117,814 120,000 107,302 96,889 100,000 80,000 60,000 40,000 20,000 0 2014 2015 2016 2017 2018 22 Source: Swiss Re Term & Health Watch 2019
INCOME PROTECTION TOTAL SALES BY TYPE - 2018 2% 30% Full benefit One year Two year Five year 58% Other 10% 23 Source: Swiss Re Term & Health Watch 2019
INCOME PROTECTION SALES BY DISTRIBUTION CHANNEL 2018 140,000 122,471 120,000 100,000 80,000 60,000 40,000 23,755 20,000 2,196 76 - Directly Tied Direct Bancassurance Authorised 24 Source: Swiss Re Term & Health Watch 2019
POSITIONING THE PROTECTION NEED TO MORTGAGE CLIENTS
SETTING OUT YOUR STALL CLIENT EXPECTATIONS? • Business Card – 2 objectives? • Mortgage AND Protection Adviser • Same level of importance? • Duty of Care • Normal Business Practice 26
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