Mortgage protection should be the ‘cornerstone’ of financial planning

In conversation on The Adviser’s Elite Broker podcast, two unique international brokers shared their perspective on how they start a conversation with their clients in order to provide these insurance products, and why they believe it is so important to do so.

Speaking on the podcast were David Devine, a mortgage broker and financial planner from the Republic of Ireland, working for Platinum Financial Group in Bray, and Ewan Richmond from Mortgage Advice Bureau in Enniskillen, Northern Ireland.

Noting that the appetite for mortgage protection insurance is pretty low in Australia compared to the UK and Irish markets, the brokers revealed how they start the insurance conversation with their customers.

Mr Ewan stated that he ensures to bring up the importance of mortgage protection right from the outset of his meetings with customers, as he believes it is in the best interest of his clients in the funding of their biggest asset, which in turn supports his business.

“We’re positioning ourselves that we will first and foremost aim to provide the very best mortgage solution, but as a company we also support sustainable home ownership, [which can be obtained] through protection.”

Mr Richmond first focuses on protection for loss of income, which he stated is “essentially the oil that keeps everybody functioning on a day to day basis, including the financing of the family home.”

After that point, if the client’s budget allows for it, he will encourage them to look at critical illness cover and life insurance, “because we want to protect our clients as well as possible, but we also want to increase the earnings opportunities.”

Mr Richmond again emphasised that offering insurance and protection is an important part of supporting his clients, and ensuring they feel safe and comfortable.

“[W]e do see ourselves as being on a trip with our clients, and as their circumstances change with regards to maybe having a family, that we will also endeavour to provide those protection needs in the future.”

He added that he believes that making sure his clients are well protected for future unforeseen circumstances is in the best interests of his clients, in his business, and in the wider UK financial sphere.

“I think the protection is actually very important as well in terms of not just protecting the borrower, [but] in a broader sense, a well-protected set of borrowers throughout the UK or Ireland relates to stronger home ownership. I mean, anything that takes risk away in a person’s situation I think has to be a good thing.”

Across the border, in the Republic of Ireland, circumstances surrounding mortgage protection insurance is quite different, as it is a requirement from the banks that mortgagors have insurance.

This means that for Mr Devine, the conversation around insurance is crucial, as is his clients’ understanding of the product.

“Ireland in that sense is a unique setup because mortgage protection is a criteria of draw down, you cannot actually draw down in Ireland without having it in place, the banks insist on it,” Mr Devine said.

“So, the protection piece is built into the conversation from the get-go. 

“I suppose helping the clients understand that the house is covered in the event of your debt, but the income protection piece [and] critical illness, they’re vital parts for them to consider, because as Ewan said, there’s no mortgage repayments without an income, and so it’s trying to open up that extra bit of conversation.”

He added: “And of course again to increase the revenue in the business.”

However, despite the regulation, Mr Devine said he thinks that protection is a hugely important part of any purchaser’s financial plan.

“From any financial perspective, protection should be the cornerstone,” he said.

“I think a lot of wealth managers and financial planners tend to overlook it and go straight for the pensions and investment piece rather than looking at the protection piece first.”

Back to Northern Ireland, where, like Australia, mortgage protection insurance is not required in order to take out a loan, Mr Richmond stated that his conversion rate is noticeably strong.

“I would say that our conversion rate [for mortgage to mortgage protection insurance] would be about 70 to 75 per cent, which, given that it’s not regulated [like Ireland], is quite strong.”

Mr Richmond noted that it isn’t difficult for clients to consider the benefit of protecting their income and insurance payments should anything happen to them, when he can show them the repercussions of not doing so.

“I think there’s various touchpoints. I think when you’re looking at a mortgage application and you’re doing the budget planner, it’s a very easy conversation to have.”

He mentioned showcasing to clients that their serviceability will be greatly affected should their partner be unable to work.

“And we ask them, ‘How would you feel about that?’ and the answer is always that they would feel quite uncomfortable, and given that the government’s statutory sick pay in the UK is ￡92.05 ($173.16) per week for 28 weeks, and after that it’s a very rigorous assessment to see whether or not you’re deemed fit to work or not,” he said.

“So at ￡92.05 ($173.16), it’s not a difficult conversation.”

In the event that clients choose not to take, or cannot afford, insurance, Mr Richmond helps to plan a budget that contains an appropriate savings buffer, and then reassess with the client in the future.

“[W]e do say to clients: you know you’ll have a budget the same way that my house and family have a budget, and we do what we can with it and with what’s available.

“So, what we can’t pick up at the outset, we go back and build a program in, to build the protection as we go along.”

[Related: Broking in Ireland and Northern Ireland: EU Study Tour 2019]