The menu of benefits approach to term assurance products is the latest innovation in the term market...
The menu of benefits approach to term assurance products is the latest innovation in the term market. The simple structure of term assurance provides the perfect platform from which to create a menu-based product. Since the initial menu-based products were launched in the mid-90s, many companies have adopted this approach with great success.
A menu product offers a number of different protection benefits, typically life, critical illness, total permanent disability benefit and income protection, along with a variety of other benefits and features within the same plan. From this menu the IFA can select the elements required to create a bespoke protection plan that meets the individual needs of their clients. For this reason, it is important that each benefit is available separately as well as forming part of a combination with other elements of the menu.
'One size fits all' plans are no longer the only option as shown by the increasing numbers of IFAs who are embracing this new flexible approach to protection. Menu products are extremely well-suited to the IFA channel because IFAs can provide the client with knowledge and understanding of the different types of protection products available, and how best to combine them to suit the specific needs of the client. These products also meet the IFA's requirement for a flexible but simple product which offers comprehensive protection at a competitive price.
Client benefits
So, what are the benefits of menu products? Clients are served by a 'made to measure' service - the IFA is creating a bespoke protection plan which meets the precise needs of each client. The client can therefore rest assured that they only pay for the benefits they actually need and not for unnecessary add-ons.
Menu products also allow more than one protection requirement to be covered within the same plan. For example, a plan taken out primarily to cover a mortgage may also include benefits that provide family protection, or protection for other liabilities such as a car loan. Combining these different needs within the one protection plan keeps things simple for the client.
Menu products also bring advantages when it comes to documentation. With a menu-based plan there is only one set of documentation which will cover all the client's protection products. A client only has to complete one application form, one set of medical questions, and one direct debit mandate which makes tracking their finances much easier, and if it proves necessary, one medical examination. If each element of the protection package was taken out with a number of different providers, then the client would have to complete different application forms and medical questionnaires. This can prove time-consuming and sometimes frustrating to both the IFA and the client.
Cost and control
Cost may be a concern for some clients, but the beauty of a menu product is that it can offer IFAs a certain degree of control and enable them to keep the cost at an affordable level for their client. For example, if a lump sum benefit is too expensive they can explore income benefits, as this is cheaper.
If guaranteed rates are too expensive there is the option of reviewable rates which may provide a more cost-effective alternative. When the plan is initially set up, IFAs have the ability to keep the levels of protection to the minimum required, with a view to enhance it at a later date when funds may not be so restricted. While the IFA cannot set the premiums to be paid, they do have the ability to manage the cost for the client by using the benefits and options from the menu effectively.
One counter argument to menu-based products is the old proverb that people should not put all their eggs in one basket. But with menu products, combining several benefits within the same plan usually creates a cost saving. Even if the menu product is a little more expensive than the sum of its equal parts from separate policies, the menu product can offer many other benefits. One example is the flexibility to make changes once the plan has been set up, which may be an important consideration for some clients.
Flexibility
As well as the freedom and flexibility to select the benefits and options required, menu products offer the flexibility to change the benefits in line with the client's changing circumstances. No-one likes to be tied into something that they cannot change. This is especially true of long-term commitments like mortgage protection. An IFA recommending their client takes out a 25-year plan will find it easier if they can reassure the client they can make changes to their plan whenever required. With the current trend towards flexible mortgages this facility has never been more valuable.
'Flexibility' and 'adaptability' are the current buzzwords in the menu products market, but both are just another way of providing peace of mind. If a client's situation does change, for example they marry or have children, then the product can be adapted to meet and protect these new responsibilities or changes to lifestyle.
This brings obvious benefits for the client. However, it is also good news for the IFA. It provides a reason to regularly chat to clients to reassess their circumstances and fill any gaps that may have arisen in their protection plans. Returning to the client to check their protection plans meet their current needs strengthens the relationship between the client and the IFA, and can help IFAs identify new business opportunities.
Take a single young woman who buys her first flat as an example. Money is tight and the IFA arranges a very basic protection plan from a menu product, which meets her needs and her budget at the time.
A few years later she marries and wants to include her husband on her protection policy. At the same time the IFA recommends that as this was originally set up as a basic policy which met her budget at the time, things have changed financially and they should revisit the benefits provided by the policy.
Some time later they move to a bigger house and start a family. As well as rearranging the policy to cover the increase in mortgage, the IFA also has the opportunity to recommend the addition of extra benefits to provide family protection.
This is a simple example, but it is effective in illustrating the way a policy can change as and when a client's circumstances change, and in turn helps IFAs grow their business. What started out as a basic sale for the IFA has turned into a growing source of business. The IFA now has other opportunities that they can explore with the same client. Now that there is a family to consider there may be a host of other financial planning requirements to consider - such as school fees protection, or inheritance tax planning.
Keeping it simple
While menu products offer a range of benefits and options and are able to accommodate changes once the plan has been set up, it is beneficial to both IFA and client in the long term for the IFA to ensure they choose a product which strikes the right balance in terms of flexibility. Some menu products are more complex than others and it may be that some of the additional benefits available are unlikely to be used. Choosing a relevant menu of benefits makes it simpler for IFAs to create a bespoke solution for their clients.
Menu-based products provide the flexibility clients require, given today's rapidly changing lifestyles. This spells good news for IFAs as a menu product which can grow with the client provides opportunities for the IFA to give guidance with other areas of financial planning in the future.
In view of these benefits, it is hardly surprising that menu products have proved so popular and that this trend looks certain to continue in the foreseeable future.
Laura Shanks is individual protection product development manager at Scottish Equitable
