Immediate needs products must not be forgotten, says Peter Fisher
Sales of impaired life annuities continue to rise steadily and there is now increased awareness among IFAs. Media coverage of the benefits customers could get by opting for an impaired life annuity has increased. There is also improved sales support material from impaired life providers. Despite this, few immediate needs care plans are sold. Few advisers understand the market and lack the knowledge necessary when consulting clients.
To combat these problems many providers offer training. But unless advisers can complement this with sufficient casework, knowledge gained will be wasted. This, combined with rapid change in legislation, often means knowledge becomes out of date. With few providers in the market opportunities exist for more players to increase competition and offer greater variety.
I entered the long term care (LTC) market in 1991 when we had the Commercial Union (CU) Third Age Initiative, a prefunding scheme from PPP and a small group of 'Silver Eagles' selling plans direct. It took years for companies to recognise LTC was two markets: pre-funded and immediate needs. In those days such was the naivety of providers the prefunded schemes focused marketing material on helping people to pay for care if they needed to go into a nursing home.
This naivety also affected the immediate needs products, for example the CU scheme required applicants to pay £100 for a medical, only refunded if they decided to proceed. The annuity was also heavily taxed, resulting in an unrealistic premium. At least the tax problem is behind us.
Care plans focus their marketing on custodial care when the single biggest untapped market is provision of care plans to meet domiciliary care. About 600,000 elderly people are in institutional care. About two-thirds of these are State-funded. Of the remaining 200,000, few are having their fees met by care plans. For the elderly receiving home care, the figure is over three million. I suspect only a few are funding care through an immediate care plan.
Identifying the opportunity is one thing, delivering products is another. The key factor for potential purchasers is the relationship between price, the relative's life expectancy and the emphasis placed by the family on achieving peace of mind. The immediate needs market is not about selling products, it's about delivering a complete service to families at a time of crisis. Care plans can and should play a significant part in the solution.
Immediate needs plans, like any imparied life annuity, are about taking large bets. Recommending them requires either considerable knowledge or complete ignorance. Consider the compliance issues for the £70,000 care plan, without any capital protection when the policyholder dies a month later.
