Income protection isn’t mortgage protection...or is it?

When it comes to mortgage protection, many advisers don’t consider income protection as a suitable option. But what’s behind this reluctance to recommend Income Protection and is there a growing opportunity to meet the changing needs of homeowners? 

Many advisers still focus on life insurance and critical illness cover to ensure that mortgage debts are repaid in the event of death or serious illness. However, this approach may not always provide the best advice to clients. Income Protection can offer significant benefits and address different needs, but it is often perceived as complex and time-consuming to advise on. In a challenging mortgage market, where rising interest rates and fluctuating house prices add extra pressure, it can be difficult to prioritise Income Protection. 

The Consumer Duty rules emphasise the importance of good outcomes for clients, requiring mortgage advisers to avoid foreseeable harms. This means that when recommending options, advisers need to consider all possible solutions, including income protection. 

So, where’s the opportunity?

While the uptake of income protection is increasing, there is still a long way to go to educate customers of its importance. By making protection a part of adviser roles, and communicating its importance through industry channels, mortgage advisers can help to close the gap and ensure that more people are protected against income loss. 

The increasing trend in young buyers being forced to take longer mortgages, often which run past pension age means we should be looking at mortgage protection differently.   

In the second quarter of 2024, just over two in five new mortgages had terms extending beyond the borrower’s pension age.  The past two years have seen the most rapid growth in this trend among younger borrowers. The number of under-40s taking out mortgages that will extend into their retirement years has surged by 30%.¹

The likelihood of younger homeowners suffering a serious illness or dying is far less that the likelihood of being off work through illness or injury.   

So, this begs the question, do some homeowners have more of a need for income protection than life and critical illness cover?   

I think the answer, frustratingly, is that it’s down to individual client needs and what’s important to them, people don’t want to talk about the ‘what ifs’ when they are looking forward to buying their dream home or making a fresh start.  Advisers should focus on the positives and how income protection benefits them. 

Is it important that they achieve financial stability or that they can afford to continue to pay their mortgage if they lost their income?  What would happen if their income suddenly stopped.  Most people value financial resilience, it’s what most of us strive for throughout our working lives. This is a great way of starting the income protection conversation early in the mortgage process and providing your clients with advice, after all that’s why they want to arrange their mortgage through an adviser, because they value your advice. 

Further opportunities

Younger generations, such as Gen Z and Millennials, are increasingly recognising the importance of income protection due to the unstable job market and economic uncertainties they face. As they navigate the challenges of entering the housing market, often under the moniker "Generation Rent," these younger customers are aware of the impact that sudden income loss could have on their financial stability. The rising cost of living and the constant threat of job redundancies make income protection a sensible and proactive choice. 

Moreover, many younger individuals are also keenly aware of the benefits associated with income protection policies, including added health and wellbeing services. These services provide additional security and peace of mind, which aligns with their holistic approach to health and financial resilience. The data from the Income Protection Task Force, shows that 72% of applications come from individuals aged 45 or younger², underscores this trend and reflects the growing appeal of income protection among the younger demographic. 

So, ultimately if you focus on income protection you have a product that most of your clients have a need for. And, unlike life insurance, it’s a product people can more easily see themselves benefitting from a claim at some point.  And don’t forget the added health and wellbeing benefits that will come with their policy further helping to show them the true value of protection.  

Sources:

¹Bank of England, 2024 Over 40% of new mortgages extend beyond retirement age | Today's Wills and Probate

²IPTF & IRESS, 2024 Profile of an IP Customer (PDF, 3MB)

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