Suddenly life assurance became an affordable way of avoiding a pauper grave. According to Swiss Re, by 1914 there were around 39mn industrial assurance policies in force.
Life assurance in the latter half of the 20th century generally consisted of with-profits and unit-linked policies, which were designed to provide customers with both a savings vehicle and life cover.
Insurance policies issued before March 1984 also benefited from life assurance premium relief (LAPR), which was essentially an incentive to encourage people to take out financial protection for their families.
The LAPR was available for policyholders at a very generous rate of 12.5 per cent – unthinkable when you look at the reliefs available today.
Are things different now?
Today, there are some lenders that will insist that life insurance is in force before the mortgage offer is made. But generally speaking, you can take out a mortgage without life insurance.
After all, if you are unable to pay your mortgage due to ill health or death, the lender still has an asset, and they can take that asset back.
Buildings insurance to some extent is still a mandatory requirement of a mortgage offer. In that situation, if the property burns down, the lender has lost part of their asset.
However, the industry has come a long way in the past 40 years. The role of protection advice is clearer, as are the products and the role they play in helping a client’s financial resilience.
The consumer duty has helped demonstrate why protection advice must be part of the holistic advice planning process, and this is a positive change.
However, there is still a big challenge with the extent of the protection gap in the UK. A recent Royal London report highlighted just how wide the gap is, particularly for non-homeowners.
So, would mandating insurance, like banks mandating endowment policies in the 1980s, help to reduce the protection gap? While it sounds plausible, there are some challenges that the industry would need to address.
1. The mandated solution
What would clients be ‘mandated’ to buy? Should every mortgage be sold with life insurance? Or should clients be required to take out an income protection policy as well?
2. Insuring the uninsurable
If someone has an underlying health condition or a job that might restrict them from being able to access insurance, in a world where protection is mandated, does that mean they are unable to get a mortgage?
3. Forgetting the ‘why 'of protection advice
Protection should be viewed as an essential part of ensuring clients receive well rounded financial advice.
Protection advice is something that needs to be considered not just at the point in time a client is taking out a mortgage, but at every life stage when there needs to be a discussion or review of a clients’ needs.
