As the protection landscape changes, Deepak Jobanputra investigates how whole of life cover is becoming more of a necessity
As we all know, protection planning has traditionally focused on covering the mortgage and offering financial peace of mind should your clients become critically ill or die.
These conversations normally take place at key points in peoples’ lives, such as taking out a mortgage, starting a family, or planning for retirement.
But the protection landscape has changed dramatically over recent years, which has been driven by a number of factors.
For one, people are now living longer now than ever before, thanks to advances in medical care and an increasing awareness about how to live our lives in a healthier way.
Although it is more expensive [than a term assurance policy], whole of life guarantees a payout, so your client can be safe in the knowledge that there will be money life behind for their loved ones
Not only this, but the way people are living their lives is changing too: people are buying their first homes later, starting families later and often working into their retirement years.
As these key financial milestones are now often occurring later in people lives, the protection needs of older clients are also changing. This article will look at the growing need, and sales opportunities, for whole of life cover.
Term assurance sales
So why do continue to outstrip whole of life cover? Despite the changing landscape, the Life Cover market is still dominated by Term Assurance sales. In 2014, there were three times as many sold (832,935) as there was Whole of Life policies (273,991)1.
The cost of whole of life cover is one of the key reasons for this. Although it is cheaper the younger your client is when they take out a policy, they will pay a higher premium than for an equivalent term assurance policy. As we all know, reasons for this include:
• Whole of life policies are guaranteed to pay out on death;
• As your clients grow older, their mortality risk increases. So that premiums can remain steady throughout the duration of the policy, younger clients are subsidising their future risk. This can mean that clients are compromising on the level of cover they take out, or taking out a term assurance policy instead.
As an adviser, you need to think about whether a term assurance policy is right for your client. Is it likely that your 35-year-old client will die in the next 20 years?
And, if they don’t, how much will it cost them to take out another policy when this one expires?
Although it is more expensive, whole of life guarantees a payout, so your client can be safe in the knowledge that there will be money left behind for their loved ones.
Guaranteed acceptance/over 50s plans
And what about guaranteed acceptance/over 50s plans? The growth in guaranteed acceptance plans has been strong over the past few years. In 2014, they accounted for nearly 90% of all whole of life sales (1).
These policies are usually for smaller sums assured and are intended for people to cover their funeral costs.
Sales of these products have grown for a number of reasons. As a non-advised product, they are easy to buy and simple to understand.
And because they aren’t fully underwritten, people are generally offered cover irrespective of their medical history.
However, this is one of the main reasons that guaranteed acceptance plans offer incredibly poor value for money: because healthy clients are subsidising the cost of cover for those who aren’t in such great health.
In fact, research shows that clients can receive more than six times more cover for the same premium when they take out a fully underwritten whole of life plan compared to a guaranteed acceptance plan (2).
Not only that, but many guaranteed acceptance plans exclude claims in the first two years of the policy.
Despite the poor value, the growing numbers of sales of these plans highlight the need for your older clients to be better informed of their protection needs and options.
British Friendly has introduced an online Adviser Toolkit to encourage income protection sales.
Zurich has launched a 'selfie' app called FaceQuote which estimates how much life cover someone might need.
The official supplement of this year's COVER Excellence Awards is available to read now as an eBook.
Child cover within critical illness plans has assumed a far greater importance in recent years, writes CIExpert's Alan Lakey.