For most of us, death is not something we like to think about or dwell on. However, despite the cont...
For most of us, death is not something we like to think about or dwell on. However, despite the continuing trend of improving mortality over a prolonged period, death rates will always remain constant at one per life.
While life assurance cannot relieve the emotional turmoil, there is no doubt it can go a long way to relieve the financial shock a death can cause. Many of you will have witnessed this through contact with a bereaved family who have received the insurer's cheque and with the co-directors or partners when the worst has happened to a business colleague. This relief from financial shock is equally effective whether it arises from a whole of life, term or an endowment assurance.
There are numerous product solutions on the market and so the essential aspect of any recommendation to a customer is based around the most suitable of these solutions.
For many years, these solutions were viewed in the eyes of many observers in the protection arena to be staid, traditional and lacking the excitement and dynamism of other faster moving financial services offerings. Developments in recent times have turned these assumptions on their heads, and none more so than in the market for term assurance historically viewed as perhaps the most traditional product of them all.
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Types of life cover.
l Term.
What could be done to liven up the simple term offering? Well it is more a question of what cannot be done. Whether the needs are for individual, family or business protection, the 1990s generation of term assurance propositions are ideally placed to meet such needs well into the next decade. Cover for death, terminal illness, critical illness, major surgery, loss of income and total disability can all be delivered, underpinned by the term structure. A wide range of payment options also reflects this 1990s generation, including guaranteed, reviewable and renewable premium choices. With life cover under term products now available up to the age of 124, the term solution can deliver both short and long-term protection security.
Before this decade of change, responses to meeting changing lifestyle protection needs were largely restricted to the much-loved (in its time) convertible term product. The protection options offered now look rather inadequate when viewed against this 1990s generation.
Individuals and families in today's world find it increasingly difficult to see too far into the future with any degree of accuracy. The 1990s products truly reflect 1990s living.
The value and flexibility in amounts and periods of cover provide opportunities to increase the cover if families change, if new loans are arranged or, in business circumstances, if values of partnerships and key people increase. There is also the invaluable facility to be underwritten once at the outset then have open-ended opportunities for cover into the future.
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l Endowments.
Much some might say too much has been said and written about endowment products in relation to mortgages and the continuing debate over methods of loan repayment. I have no intention of adding to that debate, other than to draw attention to the only aspect of the endowment product that has been neither praised nor castigated (mainly because it is mostly forgotten until the worst strikes) namely, the built-in protection covers.
Never intended to be a lead protection vehicle but always delivering, the endowment in its various guises continues to have a unique role to play in protecting what are, in the main, house-buying customers.
l Whole of life.
It has been said that when customers buy term assurance they are only 'renting' cover that they would be much better 'buying and owning' the real thing with a whole of life contract. Against the background of the 1990s generation of covers in the term market, this argument is probably no longer credible.
So, does the whole of life plan still have a place? It can provide, of course, a long-term menu of protection to individuals and families of all ages. On a 'balanced' premium basis, this is close to delivering guaranteed future costing. However, it is not as guaranteed as a term product as there is still dependence on investment returns and, in some instances, reviews beyond age 70.
For customers who are simply looking to leave a lump sum in the form of a 'nest egg' on their death, the whole of life framework suits those for whom the delivery of funeral costs is most important. However, the primary use for this product is more likely to be in tax planning usually to cover inheritance tax (IHT) liabilities. It is often arranged in later life when issues of IHT become more obvious and of relevance, and possibly set up on a joint second death basis where spouses are concerned.
Whole of life cover can also come into its own when delivering critical illness benefits to older clients as term products will invariably have a cut-off age.
Another issue for older customers is that while there are, of course, custom-made long term care products on the market, whole of life critical illness cover does provide an extra benefit which can prove useful. With permanent total disability benefits beyond age 60, the benefit is invariably based on the failure of activities of daily living. This can therefore provide a lump sum alternative to indemnity-based benefits.
While whole of life cover is certainly not as popular as it was in former years, before the unbundling of risk from protection emerged, cover down this route does add another string to the protection bow.
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Business protection.
It is true that product solutions for business protection arrangements are usually term-related. But whole of life may still have a part to play, possibly for sole proprietors where the cover might be turned into personal cover at a later stage. For example, if the sole proprietor of a business dies and it is likely the business will wind up. If they had employees, under the Employment Protection Act they are entitled to redundancy payments. Suitable cover can protect the family from such financial setbacks.
While penetration of the market for protection cover using the product solutions discussed can be judged successful in certain areas and less so in others, one issue is clear to take our business forward and to be customer-obsessed requires action and building on the product positioning currently achieved. Ease of access, high levels of service and full support to arrange cover written in the most effective manner will all be 'givens' to the truly customer-obsessed company. It must be our duty to ensure that having laid down the cornerstones of protection in the widest sense for our clients, we must take all possible actions to provide true value by considering ways in which preserved capital or income could be eroded by tax, and then considering ways to protect against that erosion.
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Inheritance tax planning.
The use of trusts provides an effective defence against erosion. All leading protection providers can assist with provision of appropriate wordings to suit most situations. Customers do not expect, nor should they, to have cover put in place without trusts forming part of the service.
When arranging cover it may become apparent that some customers will not have put a will in place, although it is sometimes difficult to understand why anyone would miss their last opportunity to dispose of their assets in exactly the manner they choose. A life assurance policy written under trust can have the same effect as a will, the sums payable under the policy being used for the beneficiaries even if the person does not take your advice and dies intestate.
There have been radical steps taken in recent times, easing the process of arranging term and whole of life covers, none more so than through the dramatic increases in levels of cover available based on an application form only. With non-medical limits up to £500,000 for life and critical illness benefits, customers can find the arrangement of cover a painless process.
As well as putting the customer at the centre of all that we do, future success requires that we continue to refresh the product offerings in line with customer needs. In the past the tendency has been for product development to receive the lion's share of resources.
However, the new age will need equal resources put into building relationships with customers in a way that reflects their needs, views and values. With pressures building in other sectors, the time has come for protection. The good news is the opportunity rests in our hands.
Ronnie Martin is market manager, life & health at Royal & SunAlliance Life & Pensions.
