Ruth Gilbert explains why no payout at all is the biggest and growing worry
The observant among you may have noticed that new fees to execute the will of the people - er, sorry - the will of a deceased person in England and Wales have been delayed indefinitely. Among other things.
The significantly increased rates were planned to come in on 1 April. But, again, the government had us fooled, as there has been no time for parliament to agree on them being applied - or not.
As previously discussed, the intended fees caused waves on a number of fronts, including the suggestion of increased liability for advisers failing to take reasonable steps to protect life policies from probate. A fair point. And in reality, more often likely to bite than inheritance tax (IHT). But for the vast majority of people, the amounts at stake are relatively small. Compared to the alarming (but rarely relevant) 40% on an excess of value above the tax-free thresholds, it's peanuts. With average sums assured still well under £200,000, most often in place with a mortgage, just £500 can be expected to be the most common penalty for having the death benefit inside the estate.
No, the big worry is that the bereaved partner for whom the cover was intended gets nothing at all. A 100% loss of typically £150,000. Not because the claim is declined, but because the adviser didn't ensure the policy was set up correctly. This is exactly what can happen to unmarried couples - and it's heart-rending to see when it does. (No, the relatives don't always play nicely and hand over the money anyway.)
We didn't used to have to worry about this so much in the days when the most common practice was for couples to take out joint polices. Or if they took single life cover, at least most couples used to be married and intestacy rules saved them, or they might even have had a will.
But now, for many good reasons, more life policies are set up as single life than joint - over 70% of term policies, going from iPipeline's figures on the rising trend over 2013-2017. Which is a big problem for the growing number of unmarried couples who don't realise how important it is to get this cover set up right. Apart from Guardian with their easy Payout Planner solution, this means there has to be a trust AND at least one trustee - hopefully the partner.
Here's the scale of the problem:
The proportion of couples who are unmarried continues to increase, whilst the highest proportions are amongst the age groups buying their first home and already with young children.
Yes, that's nearly 40% of unmarried couples where the male partner is aged 30-34.
And over 70% of children being born to a daddy aged 25-39:
Yet Unbiased found in 2017 that 72% of 35-54 year olds don't have a will. And for those with a will, don't forget a will can be challenged and still has to go through probate and possible IHT.
Even worse, the recent British Social Attitudes Survey found about a half of couples wrongly believe there is such a thing as common law marriage giving them the same rights as married couples. A belief that is more prevalent amongst those with children than without.
All this means, new probate fees or not, it's no longer OK to risk bereaved partners not getting their cover paid to them.
There are examples of a degree of success achieved by particular adviser firms and insurers who have put extra effort into getting trust and trustee uptake levels higher than the common industry rate of 7%.
However, Guardian is leading the way by far in getting this sorted, having made beneficiary nomination available via their Payout Planner. Even from day one, with an unfamiliar practice, uptake leap-frogged industry trust rates. And pleasingly, as familiarity and confidence is growing, so are uptake rates.
Alan Lakey of Highclere FS suggests: "There's no reason beneficiary nomination take-up rates shouldn't approach similar levels to those for pension death benefits, exceeding 95%. The industry blithely talks about how simplicity is a key to increasing protection take-up. Whilst I don't hum along to this mantra, I do believe that reducing the complexity and need for trustees provides a simple solution to an admin burden that causes most advisers to neglect placing policies in trust."
Or, as LifeSearch CEO Tom Baigrie puts it, "Given that Guardian's beneficiary nomination solution greatly simplifies a complex process and thus allows us all to do much more good more easily, we think all insurers should swiftly follow suit and introduce their own versions, taking whatever advice they need to be confident, but not playing a game of wait-and-see-what-others-do."
Ruth Gilbert heads up insuringchange.co.uk
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