Protection experts have warned that more and more people are ignoring or even cancelling important life, critical illness and income protection policies due to rising mortgage payments and the ongoing cost-of-living crisis.
They also report that too many consumers suffer from ‘Superman Syndrome’ and urged them to avoid using online comparison sites, which one broker has described as a “scourge” and a “false economy”.
Steven Hargreaves, mortgage adviser at Leeds-based The Mortgage Co, said: “As mortgage payments and the cost of living have increased, I have seen a growing number of clients decide to not take out any protection, as they see it as a luxury, even when they have children.
Simon Bridgland, director at Canterbury-based mortgage and protection broker, Release Freedom, confirmed this trend.
He said: “We’ve seen many people struggling with their bills over the past year or so deep dive into their outgoings and start culling what they deem to be unnecessary payments.
“Sadly, and incomprehensibly, some of those considered for the chop are life insurance and other protection policies, which are a must-have if you have bills to pay.
“Who else is going to pay the mortgage to keep a roof over your head?”
Another reason for people having no protection, according to Elliott Benson, mortgage broker at Leeds-based Sett Mortgages, is so-called ‘Superman Syndrome’.
He added: “People are absolutely not taking mortgage protection seriously enough. Despite knowing the risks, most people have Superman Syndrome and will not entertain the idea that anything could happen to them, which, of course, it very much can.
“For convenience’s sake, a lot of people are also drawn to auto policies on comparison sites and have no clue what they are getting and are effectively paying for something they will never see a benefit from as opposed to speaking to an adviser and doing it properly.”
And doing it properly often doesn’t happen when people go online, according to Sandra Feuell, director of Hatfield-based insurance specialist, Feuell4Life: “It is always obvious to me when a person has bought their life cover online, as the amount of cover has no relation to their specific needs.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services, said online comparison sites are a scourge.
He added: “Insurance is often an afterthought when it should arguably be a more significant focus than even the mortgage.
“Most consumers have no idea how complex these products are, and online comparison sites are a scourge.
“Consumers often aren’t aware that insurance providers know that when people jump online, they will typically be searching by price, so they strip out elements of their cover to make them competitive.
“It’s a false economy and can leave people high and dry when they need financial support the most.”
Emma Jones, managing director of Frodsham-based independent mortgage broker, When The Bank Says No, also urged people to avoid online comparison sites, not only to ensure they get the best value product but, just as importantly, a product that will pay out: “Some people will use comparison sites to find the cheapest cover but the quote never takes into account any health declarations.
“An experienced insurance adviser can take into account health conditions and ensure you’re with the best value provider.
“They will also ensure medical history is declared correctly so that the policy actually pays out when it’s needed.”
Meanwhile, Dave Corbett, head of protection at Protection 1st, said the simple fact of being British sees many Brits avoid taking out insurance.
He said: “It’s tough to know who is at fault for the huge protection gap in the UK. Our Britishness, specifically our “stiff upper lip” approach to life, cynicism and hatred of being sold to are certainly major factors.
“Add in confusing add-ons from providers looking for market share, the press focusing in on the tiny percentage of cases that don’t pay out, a toothless regulator that allows call centres to peddle out inferior products, the use of poor sales tactics, and the level of paperwork we are required to send out to clients, and you can see why so many people remain uninsured.”
As well as urging people to avoid online comparison sites, Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, also advised them to rethink their priorities.
Such is its complexity and importance; he also believes protection should be an advised-only product.
He said: “Too many homeowners do not fully consider the need for protection.
“They either think they are untouchable and nothing bad will ever happen to them or simply want to avoid any optional cost, but will still pay hundreds a month on Sky TV and pet insurance. It is frankly baffling.
“Comparison sites are self-defeating for the industry, too. The two things you need from insurance are, first, that it meets the shortfall and risk needs you have, and second, that it will pay out when needed.
“Comparison sites do not address either of those factors, focusing only on the sum assured, arbitrary Defaqto star ratings that have no value and, sadly, mostly on the premium.
“This leads people to take out the wrong types of coverage, for the wrong amounts, with poor quality insurers and then being left in the lurch when the worst happens and the policy they thought would protect them does not pay out.
“Protection should be an advised-only product to ensure informed decisions are made.”
For Scott Taylor-Barr, director of Leicester-based broker Barnsdale Financial Management, income protection is one of the most important insurance policies people should have on their radars: “There is a saying that we “lease our lifestyle” paying for everything we have and need each month.
“This all works well as long as, every month, money is paid into our bank accounts. It all goes very wrong, very quickly, of course, when that income doesn’t arrive.
“This makes income protection one of the most important plans that most people can have in place.
“With the average claim period being over six years, even those with 12 months of sick pay from their employer are still at least five years short of the coverage they need.”
He continued: “As for price comparison sites, we have seen time and time again that the result for the customer is generally a poor one.
“With the primary motivating factor for these searches being price, not quality of cover, insurers reduce cover as they chase the lowest premium to be at the top of the search. Only if the client needs to claim do they find out the cover limitations of that cheap price. And then it’s sadly too late.”
Hargreaves concluded: “I have seen lots of successful death, critical illness and income protection claims over the past 25 years.
“I have unfortunately seen financial disaster when a life event happens and a loved one is not insured.
“The most recent successful critical illness claim was a 31-year-old married lady who was diagnosed with cancer.
“Affordability was an issue, so they took 100% life cover and 50% critical illness cover. Upon diagnosis, the critical illness policy paid out, and she is responding well to treatment.
“50% of their joint mortgage has been repaid, meaning she can focus on getting well.”
This alone is one reason why Michelle Lawson, director at Fareham-based broker, Lawson Financial, believes protection “should be compulsory when taking out a mortgage unless an individual is categorically unable to do so.”
