Fiona Murphy finds a ‘vibrant' and ‘growing' whole-of-life market compared with its term assurance sister
Over the past few years, whole of life insurance has seemed to become the much more interesting product compared to its sister, the term assurance market.
However, it is worth noting that whole of life is a market of two halves - the medically underwritten whole of life plans and the guaranteed acceptance whole of life policies or the over-50s market.
The medically underwritten plans typically use higher premiums but have higher pay-outs while the opposite is true of the over-50s market, which has often been marketed to older people with less disposable income who wish to leave behind a small legacy to help pay for funeral costs, for example.
The 2015 Swiss Re Health and Term Watch report painted an interesting picture showing where the market grew in 2015 - the number of new non-linked whole of life policies were the clear favourite as follows:
• The number of new guaranteed acceptance whole life policies fell by 1.2%.
• The number of new non-linked whole life policies increased by 13.8%.
• The number of new unit-linked whole life policies increased by 9.5%.
The analysis also revealed that the amount of sum assured is also increasing across the board:
• The average new sum assured for a new guaranteed acceptance WOL policy was £3,526 (£3,110 in 2013).
• The average new sum assured for a new non-linked WL policy was £102,885 (£96,550 in 2013).
• The average new sum assured for a new unit-linked WL policy was £94,781(£112,105 in 2013).
And who are the major players in the whole of life market? As perhaps could be expected, the major player is over-50s favourite SunLife Direct with 126,404 policy sales during 2014. Aviva came in second place by some considerable way with 38,285 sales, followed by LV= (22,353), Vitality (21,707) and Legal & General (32,328).
One of the key uses of whole of life plans has been for estate planning in order to mitigate the impact of inheritance tax for beneficiaries.
However, In the July 2015 Budget, chancellor George Osborne announced a move set to impact the whole of life market - increases to inheritance tax threshold and a focus on not penalising the children of people with slightly more expensive estates.
Currently, inheritance tax (IHT) is charged at a rate of 40% on death on the chargeable value of an estate, above the nil-rate band, after taking into account the value of any chargeable lifetime transfers.
The current inheritance tax exemption of £325,000 has been frozen since 2010-11 and it will remain so until at least 2020.
The chancellor also announced that the government will add an additional ‘main residence' nil-rate band to the existing £325,000 tax free allowance from 6 April 2017.
The allowance will start at £100,000 but will increase by £25,000 each year until it reaches £175,000 in April 2020. It will increase in line with inflation after that.
From April 2020 individuals will be able to pass on assets worth up to £500,000, including an interest worth more than £175,000 in a home, without paying any IHT at all.
For married couples, the allowance is combined making the total £1m.
The relief only applies when passing a main residence to direct descendants and the availability of the relief will reduce for people who leave more than £2 million behind upon death.
Under the definition, a direct descendant will be a child. This includes a stepchild, adopted child or foster child, of the deceased and their lineal descendants.
Additionally, according to the proposed changes, anyone who wishes to downsize to a smaller property will be eligible for an inheritance tax credit so that even if they sell an expensive property they will still qualify for the new threshold.
Dougy Grant, protection director of Aegon described whole of life products as a "vibrant and growing market."
The insurer had launched its whole of life policy in 2014 - it was the first to place the policy in a discretionary trust at application, something that previously advisers would have had to do at a later stage leaving room for error.
The insurer had reported that it was a popular innovation - with 1000 business proposals in the first ten weeks of its offering being available through advisers with nearly 500 cases completed within the first 10 weeks after the launch. But how has it fared since?
Grant said: "We've been pleased with how our WOL product was received and we must continue to grow. We've had a lot of success with wealth advisers who are having that conversation with clients - they need to protect a client's wealth from an IHT perspective, which is not just traditional term assurance to protect the mortgage or to leave a lump sum behind. "
He said that more needed to be done in terms of awareness - "We believe that customer awareness can start in a conversation between an adviser and client with their overall wealth portfolio around things that may not be aspirational such as investments but what will happen when you die."
Aside from IHT concerns, Grant said that the introduction of the Retail Distribution Review (RDR) had meant advisers were limiting their services to "older, wealthier and fewer customers."
'The forgotten choice: cost effective and flexible'
‘Likely to appeal to clients with pre-existing conditions’
‘Connecting the dots’
Sue Clark appointed as senior underwriter