Justin Garbutt, Director of IFA Distribution at Vitality
In the recently published FCA Pure Protection Market Study interim report, the regulator acknowledged that there is still evidence of a ‘significant protection gap' in the UK, especially amongst homeowners[1].
The report highlights a 2024 FCA Financial Lives survey that showed more than 40% of mortgage holders lack life insurance. Similar research by LifeSearch and the HomeOwners Alliance found that over a third of mortgage holders had no life, critical illness or income protection cover.
All of this means that many homeowners face the risk of serious financial hardship or worse still, losing their home, should something unforeseen happen. In fact, according to recent Vitality polling, 56% of homeowners admitted they wouldn't be able to keep up with mortgage payments for longer than six months if their income stopped.
Against this backdrop, comprehensive, holistic mortgage protection advice has never been more important. Here are four steps to ensuring your homeowner clients are adequately protected.
1. Protect against more of the risks your client might face
Mortgage protection has traditionally focused on life cover. But with Consumer Duty requiring us to avoid foreseeable harm in line with changing client needs, it's crucial we think about broader protection needs.
Today, especially, products like Income Protection and Serious Illness Cover can be vital for those with eroded savings or no access to long-term sick pay. Crucially, the severity-based approach of Serious Illness Cover also ensures your clients are covered for more conditions and at the earlier stages of an illness, where there could still be a financial impact. It also means they can claim again if their condition worsens, or they fall ill with something else.
We also know that for certain clients, especially those in more physical or higher-risk jobs, accidents and injuries can be a big concern. Optional benefits like Vitality's Accident and Fracture Cover can offer market-leading payouts of up to £10,000 for a range of fractures and an additional payout of up to £2,000 if your client is hospitalised or requires surgery.
2. Support at the moment of truth
The moment of truth for our industry ultimately remains the point at which a claim arises. This is the true test of the value of advice given and cover arranged, and clearly a time when them or their loved ones really need us the most.
On one hand, this is clearly about the payout provided and quality of the claim journey, ensuring there aren't unnecessary delays which could mean they fall behind on their mortgage.
For Income Protection Cover, it's also about the additional support offered where appropriate to help the client recover, get back on their feet and back to work – arguably the best way of ensuring they keep their home.
The unique enhanced Recovery Benefit included on Vitality's Income Protection provides access to rehabilitation support for commonly claimed-for conditions. Better still, it's powered by our private medical insurance expertise and clinical pathways.
For life insurance claims, it's also about recognising the need to offer more immediate financial support for the client's loved ones at a difficult time.
With our new Advanced Funeral Pledge, we'll advance a payment of up to £2,000 of our existing £10,000 funeral benefit, paid directly to the funeral director, as soon as we've received proof of death, to ensure immediate funeral costs are covered.
3. Protection doesn't end at 65
The government's decision to scrap the proposed cap on care fees means that more people will once again need to fund their own later-life care. Elsewhere, the freezing of the nil-rate bands for Inheritance Tax (IHT) will pull more estates into paying the tax.
Whilst these aren't necessarily issues that will be at the forefront of a client's mind when taking out a mortgage, there are implications for their home later down the line. Many people are forced to sell their home to fund later life care, whilst any potential inheritance tax charge could impact their ability to pass on their home to their children.
Protection solutions like Vitality's Dementia and FrailCare cover - included automatically on Serious Illness Cover plans - or Whole of Life with LifestyleCare Cover can provide vital financial support to help your clients fund later life care.
Meanwhile, products like Whole of Life Cover written in trust are an increasingly viable way for your clients to protect a potential IHT liability, ringfence funds outside of their estate or even just pay for funeral costs.
4. Prevention is as important as protection
Having the right financial safety net is absolutely vital for life's unexpected curve balls. But it goes without saying that – if given the choice – most clients would much prefer not to need to claim at all.
And indeed, remaining healthy and free from illness is likely to be the best way to ensure your clients keep their house and can enjoy their lifestyle.
Giving your clients access to benefits like the Vitality Programme, which rewards and incentivises healthy behaviours provides a powerful and proven way to not just make clients healthier – and help them live up to five years longer[2] - but deliver much more tangible value from day one.
All this helps ensure your client is not just protecting the mortgage but covering themselves for the full breadth of risks they are likely to face as homeowners.
[2] Based on members who move from 0 to 21+ activity points a week throughout their lifetime, applied to standard UK mortality rates - Vitality Life Claims and Benefits Report 2024.
