Susan Barclay, head of marketing at Scottish Provident, explains why it can be advantageous to divide a client's protection outlay between different products and how the task can be greatly facilitated by using menu-based format .
YOU DO THE MATHS
In an ideal world clients would be able to afford as much protection cover as they wanted but few would describe current times as anything approaching ideal. Indeed, many consumers probably cannot recall the last time that their budgets felt so stretched.
Nevertheless, this doesn't mean that they have to indulge in either/or decisions that result in missing out on some essential protection products altogether. There can be much to be said for splitting what outlay there is available to obtain a small amount of cover from a number of different products rather than opting for a large amount of one.
Such an approach can make a great deal of sense for an IFA from a regulatory perspective.
Complying with Treating Customers Fairly (TCF) involves taking a holistic approach towards client requirements, and any adviser that leaves a gaping hole in someone's protection portfolio could find that it comes back to haunt them.
An IFA who recommends a sizeable chunk of life cover but no health insurance could, for example, find themselves with some awkward questions to answer if their client developed a critical illness.
The same applies if they recommend plentiful critical illness cover but no income protection and their client becomes unable to earn a living as a result of a bad back or stress related condition. Neither condition would be covered under a critical illness policy - unless the problem was so serious that it qualified for a total permanent disability (TPD) claim - but both would be covered by income protection.
Arranging a small amount of both income protection and critical illness cover can provide the best of both worlds. The client is protected against a broader range of eventualities and, if they qualify for a pay-out from both policies, the benefits should complement each other well. The regular income from the income protection policy should hopefully be sufficient to take care of most of the essential bills whilst the lump sum from the critical illness policy could be used to finance one-off costs such as a holiday for recuperation purposes or even minor adaptations to the home that become necessary to accommodate a disability.
Developing an appetite for menus
Fortunately, the major specialist protection insurers greatly facilitate the task of arranging multiple products by offering flexible menu-based formats, which allow cover to be mixed and matched cost-effectively and with a minimum of hassle.
Scottish Provident's Self Assurance plan offers a good menu that gives access to life assurance, income protection, critical illness cover, unemployment cover and waiver of premium, and it can enable premiums to be reduced by paying only a single policy fee if the client opts for two or more different covers. Those who take reasonable levels of three different benefits with Scottish Provident's Self Assurance menu can make significant savings - the example below shows a saving of more than £6 a month. *
Such menus can also offer the opportunity to have either level, decreasing or increasing benefits and may even allow life and critical illness cover benefits to be paid as a regular income rather than as a lump sum. Taking advantage of such flexibility can greatly reduce costs. For example, having benefit paid as an income as opposed to a lump sum could reduce the premium significantly. Based on a male, non-smoker, aged 40 next birthday. taking a 20-year combined life and critical illness cover policy of £7500 paid as a monthly income, rather than £150,000 as a lump sum, the premium is reduced by well over half.**
A menu-based product can also help to cater for lifestyle changes such as marriage, divorce, promotion or moving home by adding or removing covers or, subject to specified limits, increasing or reducing benefit amounts on existing covers without having to provide any further medical evidence.
A further multiple-cover dimension is provided by the fact that good quality critical illness policies nowadays cover not only the policyholder but also their children - subject to a stated lesser sum insured. This can provide those with families with very significant added value. Indeed, children's benefit is Scottish Provident's fifth highest claims category on critical illness cover. (Scottish Provident critical illness claims paid, Jan-Jun 2009).
Furthermore, some menu plans also offer additional benefits at no extra cost, to those who opt for more than one cover. Scottish Provident's Self Assurance, for example, provides those who combine income protection with life or earlier critical illness cover - or stand-alone critical illness cover of at least £25,000 - with both Children's Income Benefit and Immediate Cash Benefit.
The former provides (in addition to the lump sum children's benefit) a monthly income for a specified period when one of the policyholder's children is diagnosed with a critical illness (that satisfies our definition), and the latter pays out an additional lump sum at the same time as the critical illness claim payout.
Multi-benefit protection from Scottish Provident - all adds up to a flexible plan for your clients' future.
For more information on multi-benefit protection visit www.scotprovmultibenefits.co.uk. Alternatively speak to your Sales Consultant or call Salesline on 0845 300 0005 (option 2).
*Based on female, non-smoker, 40 next birthday, 20-year term. Life cover £150k - level lump sum. Critical illness cover - £150k level lump sum, own occupation TPD. Income protection - £18k p.a., 26 wk deferred period. Waiver - 26 weeks. If all three benefits were taken individually monthly premium would be £119.96. If all three benefits were taken on the one plan, monthly premium would be £113.87, saving £6.09.
** Based on male, non-smoker, 40 next birthday, with a mortgage of £150,000 for a 20 year term. If this was taken as £150,000 payable as a lump sum, the monthly premium would be £71.86. If this was taken as £7500 a year, payable as a monthly income, the monthly premium would be £29.64, a saving of £42.22.
For full details including any exclusions and limitations, and terms and conditions, please refer to our product guide.