Happier families

Lifestage marketing has revolutionised protection sales in recent years, with providers focusing on common concerns and needs that affect people as they progress through life.

Advisers have learnt how to use this technique to illustrate to clients the importance of having the right safety net in place as their circumstances change. Yet sales of one product that is prime for this type of sales technique has failed to take off.

Sales of family income benefit (FIB) have never come into their own. Currently estimated to account for less than 5% of the term assurance market, FIB plans are often overlooked in financial planning discussions. However, the product could provide the perfect fit for young families on a budget. With premiums sometimes less than 50% of traditional term assurance, FIB should be an attractive product.

Lack of interest

So why are sales lagging? First, let us look at the product's basic functionality. FIB offers decreasing term benefits to the family of the deceased as a quarterly income instead of a lump sum. Almost every term assurance provider will have an FIB plan in its product range. Recently, the product has been adapted so it can be linked to critical illness (CI) cover, again at a fraction of the cost of traditional CI plans.

As so many clients grumble about the cost of buying protection, why aren't people buying FIB?

'One problem this type of cover suffers from, is the same as with income protection (IP) ' a regular income never sounds as glamourous as a huge lump sum,' says Roger Edwards, head of products at Scottish Life.

Indeed, it seems the tendency to want everything now, rather than on a gradual basis, is part of human nature. Despite premiums being considerably lower than lump sum term assurance, people tend to reject the idea of quarterly payments.

As with all decreasing benefits, the amount beneficiaries can claim also reduces over time. This is the reason why premiums are so much cheaper, but in turn is also the main disadvantage ' and ultimate turn-off for potential policyholders.

Getting what you pay for

As Mike Turner, product manager of Friends Provident, says, with FIB you get what you pay for.

'It might be cheaper, but its benefit reduces in value, so in reality it may not be as cost-effective as traditional term assurance,' he says.

Cost is undoubtedly FIB's biggest selling point. But with the cost of traditional term assurance also at an all-time low, it can fail to incentivise.

Gerry Warner, marketing development manager at Standard Life, says cheap term assurance has stolen the spotlight in recent years.

'Sales of our FIB product have not been good. The focus has been on level and reducing term assurance. However, it is a good product and is exactly what young families should have in place. It has been around for such a long time there could be a view that it is old-fashioned cover. Either that, or advisers are simply overlooking it when discussing options with clients,' he says.

These negative points are the hurdles that both providers and advisers have to overcome if sales are going to rise. FIB does have its benefits ' advisers simply have to know how to get the advantages that cover can offer over to clients in a way they understand.

Edwards says one way to turn around clients' negative response to receiving benefit as an income is to try and make it seem like an advantage.

'One good way to illustrate the benefits of having an income rather than a lump sum is to associate it with other regular costs ' such as mortgage repayments or school fees. Many people are not even aware that this kind of cover exists, so it is important for advisers to include it in discussions with clients, so they are at least aware of the option,' he says.

Laura Shanks, product development manager at Scottish Equitable, says relating cover to clients' particular circumstances can help incentivise clients to buy FIB.

'There are different ways in which advisers can look at cover when advising clients. For example, it can be sold as houseperson's cover. This is for families that rely on one person staying at home to do the housework and look after the children, while the other parent goes to work. If the houseperson finds they cannot work due to illness or death, the cover will pay to employ someone to do the housework and look after the children so the breadwinner does not have to jeopardise their job by taking on these responsibilities. It can also be seen as school fees protection ' making sure an income is maintained to cover payments.'

Another interesting way to use FIB cover is to protect maintenance payments from a broken relationship.

'A client may want to ensure their estranged partner keeps up maintenance payments, should they become seriously ill or die,' says Shanks.

The move to tie CI cover into FIB plans has, in many providers' views, been understated by advisers when discussing options with clients. Sales of CI cover are more sensitive to price than term assurance. Most people agree that CI cover is a good idea ' statistics for cancer and heart attack rates speak for themselves. Yet sales remain blighted by cost.

'People are often put off critical illness cover due to its cost ' so family income benefit with critical illness cover can provide an attractive deal,' says Edwards.

According to Paul Casey, marketing analyst at GE Frankona Re, sales of FIB plans could increase if advisers look at the product from a different angle.

'Advisers can be more creative with FIB. By taking a more holistic approach to financial planning, they can help clients get at least some cover for critical illness, when otherwise they would be unable to afford any,' he says.

FIB with critical illness cover can also work well alongside other products, such as IP, as it does not affect State benefit entitlements. If a client is unfortunate enough to claim, FIB can provide regular payments to help top up their IP benefit.

'FIB can be a good planning tool for clients,' says Nick Kirwan, head of product development at Scottish Provident. 'It can help boost income protection payments, by paying the other 50% of your salary should you become ill. Unlike income protection, it is not affected by State benefit entitlements.'

A lift up

Although FIB sales have not exactly rocketed in recent years, one development has given the sector a slight boost. The explosion of menu products over the last year or so has helped increase FIB's saleability. Most providers with menu plans include FIB as an option, helping to bring the product into the forefront of discussions when talking clients through their options.

According to figures from the provider GE Frankona Re, new FIB business increased to nearly 19,000 in 2001, compared to just over 17,000 in 2000. This brings the total number of policies now in force to over 220,000. Turner thinks this increase has definitely been helped with the launch of menu products to the market.

'Family income benefit plans still only make up a small proportion of the term assurance market, but there has been a comeback due to the availability of menu products,' he says.

Menu products have had such an impact that Friends Provident no longer offers its protection through IFAs, leaving it to its direct sales force. Instead, its more popular menu product is the main sales tool for advisers selling FIB cover.

FIB sits well among menu products. Menu products sell effectively through lifestage marketing ' elements of cover can be taken up or discarded as the policyholder's circumstances change. Although FIB might not be ideal for everyone, it certainly has its place.

For young families on a tight budget, it can provide just the right amount of cover to provide peace of mind without spending a fortune on premiums.

As Warner says: 'Many family income benefit policyholders run the term of the policy until their children reach 18. This sort of cover is very good at adapting to particular life stages of families.'

There is no escaping the fact that FIB has its limitations and for some people, the reduction in cost will never make up for the holes it might leave in cover. However, for some clients, FIB could be just the protection solution they need and probably never even knew existed.

It is the adviser's role to ensure clients are aware of the FIB option. For some clients it may make the difference between having no cover in place and having at least some sort of safety net to give peace of mind while their family is growing up.

Kirstie Redford is deputy editor