Q: What are the pros and cons of protection policies?
The customer needs will be taken into account when deciding what type of cover is relevant.
For example, Jennifer Gilchrist, senior product development manager of Bright Grey and Scottish Provident, said if someone is looking for cover for an inheritance tax (IHT) liability then whole of life cover is right for them.
She said this will make sure there is sufficient cover in place to allow the family to pay an inheritance tax bill on death.
Term is more normally used when a customer wants cover for say the term of a mortgage, she added.
For income protection cover, Ms Gilchrist said you would expect cover to be in place up to retirement.
She said: “An adviser would be able to assess the client’s existing and potential future personal situation - it could be mortgage protection that’s needed or maybe some family protection.
“He would then be able to suggest what types of protection plan could best suit the client’s needs including their available budget to fund cover.”
Simon Wilkins, protection proposition manager of Zurich UK Life, agreed the advantages/disadvantages of a specific plan or its provider will depend on individual client circumstances.
What for one client is an advantage will be a disadvantage for another.
As an example, Mr Wilkins cited a client wanting life cover over a specified period of time will see paying for the specific term of cover as an advantage and paying for a whole of life plan as a disadvantage.
A client wanting whole of life protection will see any contract with a specified term as a disadvantage, he added.
Mr Wilkins said the effective completion of a full fact find should provide sufficient detail to enable the adviser to establish what would and would not be suitable to a client’s given circumstances.
According to Mr Wilkins areas to consider would be:
1) Scope of cover
2) Underwriting requirements
3) Cost of cover
4) Providers quality of service both on going and at claim
5) Providers financial strength
Life Insurance pros:
1) The financial support can help provide the peace of mind of financial stability for a family, particularly if an income is lost.
2) According to Louise Colley, head of protection marketing at Aviva, families of customers frequently report that a life insurance payment means there is ‘one less thing to worry about’ at a very difficult time.
3) Life insurance is generally one of the cheaper forms of family protection.
4) Policies can be placed under trust so that they can pay out without needing to go through probate.
Life insurance cons:
1) Most life insurance policies have no cash in value and no money is returned at the end of a policy’s term - so some people may view their premiums as lost money if they never need to make a claim.
However, without life insurance, people need to consider how they could help protect their dependents financially, should the worst happen.
Income protection pros:
1) It provides the customer with an income in the event that they cannot work due to accident or illness, enabling them to continue paying bills or a mortgage.
2) Policies can provide an income for many years if the individual is unable to work or unable to return to a job at the same level of income.
3) Income protection normally provides a higher income than the equivalent state provision.
Income protection cons:
1) As with all forms of protection, Ms Colley said there is always the chance that the customer may not need to make a claim.
Again, Ms Colley said there is no cash-in value or return of premiums if a policy ends.
2) Income protection should not be confused with ASU policies, which also provide cover for unemployment.
Critical illness cover pros:
1) CI cover provides financial support to the customer and their family at a time of great need.
2) Group schemes often provide additional levels of support such as access to rehabilitation nurses and specialist medical professionals.
Critical illness cover cons:
1) Only the conditions defined under the policy’s terms are covered.
2) Pre-existing conditions are not normally covered, according to Ms Colley.
3) Some experimental treatments are not covered under certain policies., she added.
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