When someone makes the decision to take out protection insurance, it is no surprise they get confused. To the uninitiated the range of products can be mind boggling. Even life insurance, the simplest product of all, can present some baffling choices.
Should they take out term assurance, a level, increasing or decreasing amount of cover, joint life or single life? Suddenly it does not seem quite so simple. And this is where advice is key. Advisers can help clients make sense of complex financial situations and ensure they end up with the product that best suits their client’s individual needs.
Without advice would someone think to take out a whole of life plan, for example?
Whole of life has traditionally been seen as an expensive inheritance tax (IHT) planning tool for high net worth clients. Its perceived complexity may also be a reason that it is often overlooked by advisers and consumers - but not any longer.
Whole of life has been given a make-over and is now just as suited to a young family on a modest salary as it is to a retired multi-millionaire. Both can use a whole of life product to meet their very different protection needs.
Life under the RDR
When RDR came along it brought with it an opportunity to revitalise the whole of life market. Life insurers embraced this opportunity by redesigning their whole of life plans to help widen the product’s appeal to advisers and clients.
For example, the investment element has gone and guaranteed premiums have been introduced giving customers a choice between reviewable and guaranteed premium types. With no investment choice to make, this is a new and fresh approach which brings a welcome sense of simplicity.
A whole of life plan can suit several financial planning needs. In addition to IHT planning, one of the most obvious uses is for clients who want to be sure of leaving a nest-egg for their children.
Many people now rely on their homes as a pension in their old age but they might find themselves in a situation where there is little money left to pass on once they have significantly downsized their property. Using a whole-of-life plan can enable them to ring-fence money specifically for the benefit of their heirs.
The flexibility of the plans means clients can increase the amount covered after the plan has started. Increase options come as standard on plans accepted at ordinary rates and are allowed without further underwriting.
Plans without these options or where cover above the limits allowed is required, ad hoc increasing is generally allowed but will come with an underwriting requirement. This should help to ensure that clients wanting to leave a legacy can – but also affords them future flexibility on the amount covered.
Protection needs
Not all clients will fit neatly into the IHT planning, high net worth and wealth creation folder. And that is where a whole of life plan can remove the issue with term cover, of having to choose the right term for the cover to last. Mortgage cover may be a trigger for life cover but happily, mortgages do not last for life.
With children living at home longer and buying their own homes later in life, family protection may be needed longer than expected. The neat model of protection needs is being replaced by a much more diversified picture. And that is why a whole-of-life plan could prove invaluable because the client cannot choose the ‘wrong term’.
With this type of plan they have cover in place for their whole life so they do not need to guess when their plan should end as they do for term assurance. Its flexibility also means that the children can continue to pay the premiums if the parents are no longer able to do so.
Business cover
Whole-of–life cover is not limited to just personal protection. Business owners can also use it to protect current liabilities and future ones as the needs of the business change. And once the client has retired, they can take over the plan providing them with protection in their retirement.
Removing the investment element means more intermediaries now have the opportunity to recommend whole-of-life products. Unlike selling unit linked plans, they don’t need to be regulated by the Financial Services Authority (FSA) to conduct investment business. If ICOB-registered intermediaries are not already in this market, there is no stopping them from appreciating the very real flexibility offered by whole of life plans.
With some forward planning and financial advice, people can prepare for the future. And with more emphasis on holistic financial planning the new multi-usage whole of life could provide intermediaries with valuable new sales opportunities.
Jennifer Gilchrist is senior product development manager at Scottish Provident
