Given the cost-of-living crisis, it’s no wonder people are looking at how to cut their outgoings. But as a mortgage or financial adviser, you need to help your customers make the right decisions. Gordon Reid looks at how you can help customers stick with policies they may not think they need, but definitely do.
Many people are tied into financial commitments, such as loans and credit card repayments. And the average UK household spends £41.70 a month on subscriptions to services like Netflix. That means people will consider cancelling things they’re not contractually, or legally, obliged to maintain first.
For many, this could mean reviewing insurance products, such as:
- buildings and contents
- car
- life
- critical illness, and
- income protection.
If you drive or own a car, you have to have insurance for it, but you can still scout around for the best deal. Building insurance is likely to be a requirement of a lender or landlord, and probably can’t be cancelled either.
But for those who are strapped for cash, cancelling the last three on this list could result in an immediate, and significant, saving.
As a financial planner or mortgage adviser, you understand the risks of cancelling these sorts of policies, but for your customers there’s nothing to lose. No change in lifestyle! No obvious consequences!
It’s your job to ensure your customers have a better understanding of why these insurances matter.
Reviewing customers’ finances
It might be useful to suggest revisiting these protection policies as part of a holistic review of your customers’ finances.
This will give you the opportunity to remind customers why they took them out in the first place. Their circumstances are unlikely to have changed so much that they no longer need the policies. And, if you provided the original advice, you can reiterate why you advised them to do so.
You should point out to your customers that, as they cut back, they’re spending a higher proportion of their income on ‘essentials’.
In our volatile economy, in the wake of the pandemic, they should consider protecting themselves against the financial consequences of illness or redundancy. Should they suffer a loss of income, they will be less likely to afford essentials, even for a short time.
Indeed, recent research shows the average UK household could only fund basic living costs for 19 days without any income.
So, whilst cancelling protection plans may seem like an easy way to reduce outgoings, for many people it exposes them to huge risks. You must make sure your customers fully understanding the risks and implications of cancelling these policies.
Advising customers on cutting costs
If you’re customers need to cut costs dramatically, in many cases, the best advice you can give them is to talk to their providers. So, talk to their energy companies, their lenders, their subscription service providers, even their insurance companies.
That way they can find out if it’s possible to reduce or spread their payments, or change the terms of their agreements. Many providers of goods and services would prefer to do this than to lose the business completely.
You should also encourage them to look carefully at their income. Get them to check that they are paying the correct reductions including the right amount of tax. And make sure they investigate whether they might be entitled to any additional benefits.
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