Take extra care when using brokers at moment

minimike2

Just to prove its affordable as you said it isnt. Overall 52% of my clients take it, which isnt very few.
Might be to do with the fact that where I live you can still buy a house for £50k.

That said, a mortgage without insurance is unafforable in my eyes. If you cant afford to take on a level of debt that cannot be protected as well, then IMO it shouldnt be taken on.

Why do you think repos are on the up so much.

If its a wont take then fair enough, thats choice, but if I get a "cant afford" situation, I give my client a reality check. Its not narrow mindedness, its sensible. Its just a shame that the industry as a whole havent adopted this attitude the last few years.

BrokeRage

I run a small mortgage firm and would be VERY concerned that those levels of penetration would indicate churning.

I would go along with the view that a certain level of CIC is very sensible, but PHI is more important and the cover is usually better value. A twenty-year claim at £1,000 a month is £240,000 and that level of CIC, even on a decreasing basis would usually cost significantly more.

The only provisos I would put on that are that some occupations are deemed too risky to provide proper PHI cover (own or any occupation) or too expensive and that few advisers are properly competent to advise on this type of contract and therefore take refuge in Critical Illness Cover instead, which is a lesser contract because you have to have the "Right type of illness". I prefer a policy where all angles are covered.

minimike2

I do not churn.

Anyway PHI is a totally different product. Its not designed to pay a mortgage, its designed to protect income and lifestyle. It is totally unsuitable as a means of paying a mortgage in the event of a serious illness.

Firstly, with a lump sum and the mortgage paid off, there is no longer intrest accruing on the mortgage. To carry on paying, means the mortgage interest is still being charged. How much EXTRA is that going to cost..say over 10 years...i think you will find this makes CIC a much more suitable product, despite the small difference in premium - and it is small. Paying this extra in mortgage interest could in effect make using PHI a MORE expensive method.

Then theres the fact you can generally only cover up to 65% of your income anyway. So where does the other 35% come from? So that means you have a CI, have to stop work, still have a mortgage to pay, but you now have less income.......yeah, great advice!

To recommend PHI in replacement of CI for covering a CI is irresponsible.

The best scenario, is of course to have both if affordable. Many of my clients do take both and I myself have both. I just cannot believe that anyone can honestly put thier hand on heart and say that PHI is a suitable subsitute for CI when clearly it is not.

BrokeRage

If you don't churn, then it must be a remarkable coincidence to have 95% of clients who have inadequate life cover My penetration rates are drastically lower, but then a good 50% of my business is from returning clients who were previously advised properly on protection. Even to have 95% of brand new clients needing or even qualifying for life cover is statistically remarkable.

As for PHI, you make a good point regarding interest costs (I had not thought of that before, so it is a good point), but I repeat that being medically unable to work is not the same as having a critical illness (check out the reasons for long-term disability in government statistics). Most long-term disability is muscular-skeletal or mental failure of some kind, so it is definitely good advice to protect a mortgage through PHI. I didn't suggest it as a replacement, simply a higher priority as it covers more eventualities. I would put life cover as the least essential of the three covers being discussed as it is the least likely event (with CI being next and long-term disability the most likely of all, by a long way).

I can, however, put my heart and say it is great advice. In most cases, 65% of income is an increase (many insurers will limit it to 50% of gross income). Remember, there is no liability to tax under current legislation, incapacity benefit is also payable and it does not affect other benefits such as DLA. It is simply better cover than CI and you are right to say that it to protect income and lifestyle, of which having a home is an important part. Try telling your CI clients that they have been advised responsibly when they are repossessed because their arthritis or depression or collapsed spine wasn't serious enough to claim on the policy you advised them to take out.

HelpWhereIcan

BrokeRage wrote: »

I run a small mortgage firm and would be VERY concerned that those levels of penetration would indicate churning.

Penetration level is not an indicator of churning. As a principal myself I would be very worried about an adviser with a low penetration rate as that would indicate that they were not discussing protection with customers at all.

If someone had a low persistency that would be something to worry about. THAT would indictate an amount of churning and probably a habit of reccomending cover that is unaffordable.

Before making accusations like that I think it would pay to ask minimike what his persistency is like. He may just be better and more comfortable at discussing the subject with his customers than you are used to.

BrokeRage wrote: »

I would go along with the view that a certain level of CIC is very sensible, but PHI is more important and the cover is usually better value. A twenty-year claim at £1,000 a month is £240,000 and that level of CIC, even on a decreasing basis would usually cost significantly more

The only provisos I would put on that are that some occupations are deemed too risky to provide proper PHI cover (own or any occupation) or too expensive and that few advisers are properly competent to advise on this type of contract and therefore take refuge in Critical Illness Cover instead, which is a lesser contract because you have to have the "Right type of illness". I prefer a policy where all angles are covered.

To automatically assume that PHI will be a higher priority or lower cost is very dangerous. As you hint yourself, the definition of disability required can mean that some quite ill people do not qualify for a PHI payout.

What about someone diagnosed at 45 with Parkinsons? His PHI will not pay out in the early years because his condition does not prevent him from working (Solicitor with own occupation definition), but the CIC means his mortgage can be repaid and/or he has a lump sum to fund some of the changes to his lifestyle he may need... including a reduction in working hours for him or partner.

CIC and PHI are complimetary covers and around 60% of my protection cases are multiplans that include BOTH CIC and PHI.

I have a number of customers coming back to me after a period asking to add to their cover as and when it becomes affordable to take out something they declined before. eg the customer I am meeting a week on Monday to add PHI to their protection even though they declined it based on cost 12 months ago.

I can prove I have discussed all covers in depth with my customers and document their reasons for declining types of cover in a suitability letter - much better than the adviser that just goes along the life & phi combo for everyone because he assumes it is all the client can afford. Some CIC is better than none... the whole point of wondering what good martin is doing by 'advising' people not to bother with CIC.

Where I agree with your post is that the customer's budget and personal priorities must dictate what cover is set up for them ... but that does not mean that PHI and CIC cannot be arranged for someone at the same time - unless as minimike says you take so much of their free income arranging the mortgage that there is nothing left to protect their most valuable asset.

minimike2

But I dont advise they dont take PHI...I always advise everything that is within budget and a need. If its a choice between the two because of budget then I discuss with the client and see whats more important in thier circumstances it depends on the clients views. But again, with the sizes of mortgages I do on average I dont generally find affordability to be an issue.



To answer the above post, my current years persistancy rate is 100%, but I have changed from employed to self employed, so have had a "restart" where that is concerned. Last year I finished up at 93%. I spend a hell of a lot of time talking about protection. I am a firm believer in it - I spend over £100 a month for me and my partner in protection for the mortgage. I hope to God I never need to use any of it, but I prefer the peace of mind of having the protection than possibly losing my house (and for me of course, job and liveleyhood going forward) if something were to happen to me and I didtn have it.

BrokeRage

BTW, the very nature of this discussion indicates why Martin Lewis is wrong to point the public towards comparison websites for this type of protection. PHI is very complex, especially when it comes to definition of disability for different occupation classes, but also when it comes to deferred periods, limited payment periods, guaranteed or reviewable, indexation/escalation from policy outset or claim onset etc etc.

I have had to put right two advisers in our firm who were advising long-term government employees to take a six-month deferred period on the assumption that the policy would pay out when they dropped from full-pay to half pay; the reality is that any payout would be minimal during this period, so at most it should be a dual-deferred period. The general public would not, on the whole, appreciate these subtleties so they absolutely need accurate advice in this area. I had one client who wanted life cover on his mortgage, but found a slightly cheaper quote on a comparison website. The only problem was that he chose a "Mortgage Protection Assurance" (does what it says on the tin) except, of course, that this was decreasing cover and his mortgage was interest-only (credit repair). If some can't even protect themselves when it comes to the simple products, what hope do they have on complex products where even the experts can't agree which is best!

Dan_Collins_2

Cherning, not heard that for a while! You ex allied crowbar?

HelpWhereIcan

BrokeRage wrote: »

As for PHI, you make a good point regarding interest costs (I had not thought of that before, so it is a good point), but I repeat that being medically unable to work is not the same as having a critical illness (check out the reasons for long-term disability in government statistics).

No-one has suggested that CIC is better than PHI or that it should be set up instead of it. My line has always been that both should be considered, but the point has been made that Martin appears to dismiss CIC in all cases.

Statistics can prove any argument, but 2 I know of:

One in three people will suffer from cancer at some point in their lives, with a third of those succumbing to the disease before the age of 65*.

*Cancer Research UK 12/01/2005

According to Macmillan Cancer Support, research shows one in seventeen people lose their home after being diagnosed with cancer and one in six have difficulties in keeping up with their mortgage or rental payments. http://www.macmillan.org.uk/Documents/Support_Material/Get_involved/Campaigns/betterdeal/poster_awareness.pdf http://www.macmillan.org.uk/Documents/Support_Material/Get_involved/Campaigns/betterdeal/leaflet.pdf

http://www.macmillan.org.uk/Documents/Support_Material/Get_support/Working_through_cancer/Employee_booklet.pdf

As good an example for setting up both that I know (what about those cancer patients whose partners need to take time off work during their treatment?)

BrokeRage

167 & 168 are both reasonable, although I would maintain that a solicitor who can still work needs the protection less than those who can't continue working. I think that minimike2 is right to treat protection so seriously and I also agree that the covers are complimentary, not exclusive of each other and that persistency is the most indicative KPI.

There was a suggestion, however, that PHI is an "Add-on" to other covers and I think that that is the wrong way to think of it. The most likely eventuality should be the most important cover area and it is often industry perceptions that shape clients' perceived needs ("Of course you need life cover!"). I wonder if it is simply that cheapness and simplicity encourages all parties to take the easy route of life cover and consider the other options as more problematical (which they are). As for affordability, I work in the southeast and most mortgages are NOT very affordable, so true value is more essential here. I remember trainers spouting off about "Fully-protected mortgages", "Ski-ing downhill" without any real concept of their value to the client (I didn't even know about "Definitions of disability" when I was doing PHI as a life company appointed rep!).