VitalityLife's Deepak Jobanputra discusses innovations to whole of life.
Whole of Life is a product that doesn't generally receive much publicity. On the face of it, it seems to be a straightforward product that, like Life Insurance, pays out on death, but unlike typical life cover doesn't have a term.
Whole of Life tends to be used in the main for financial planning purposes, to take money out of a person's estate when they die to reduce inheritance tax bills.
According to the 2016 Swiss Re Term & Health Watch report, Whole of Life sales were less than a quarter of Life Insurance sales in 2015 - 294,074 vs 1,255,786 - yet Whole of Life in its various forms, such as funeral plans and Over 50's plans, receives a significant amount of advertising.
One of the problems we're aiming to address at Vitality through our new Interest Rate Optimiser and Premium Optimiser Whole of Life products is that the traditional product was quite rigid in what it offered.
Just as when we offered a new type of Critical Illness Cover by introducing Serious Illness Cover several years ago, we felt the time was right to improve the type of Whole of Life offering available in the market.
Whole of Life cover is also often considered to be too expensive, especially when compared to term life cover.
So the Interest Rate Optimiser option provides an upfront premium discount with annual increases dependent upon long-term interest rates.
Premium Optimiser also provides an upfront premium discount but with fixed annual increases of 2.5%.
Depending on the client's age, when combined with our existing Vitality Optimiser option policyholders can receive an upfront premium discount of up to 67%.
With more people needing to plan for Inheritance Tax and long-term care our objective was to offer customers more choice. Understandably there may be concerns over the interest rate risk - when long term interest rates are low premiums are high, but when long term interest rates increase the insurance premiums will decrease.
That risk won't be right for everyone, but for people who need Whole of Life and would rather accept discounted rates at the outset, this offers them easy access to the policy.
One of the reasons we feel we're well placed to offer this to advisers is due to our Vitality Active Rewards (we don't refer to a programme any more), which gives members various discounts and rewards through our Vitality partners.
Regardless of interest rate changes, clients can still save money throughout the term of the policy by engaging in a healthy lifestyle. This is the fairest way to reflect our members' age and lifestyle habits rather than a standard one size fits all approach.
It's important to do something to address the decline in Whole of Life sales. Back in 2011 over 400,000 were sold, dropping to just under 274,000 in 2014. That is a significant fall when, one would assume, the need for Whole of Life across the UK is increasing.
A fresh approach gives advisers more tools at their disposal when talking to clients; it brings Whole of Life back into the conversation. But new doesn't have to mean complex.
We believe these new Whole of Life products are just as straightforward as the old. In any case, complexity is an adviser's ally because it is where value is really added to the service provided and it is something that is very difficult to automate.
Innovation can only help advisers to gain an advantage because it gives them more options to distinguish themselves from the competition, including the array of direct and automated services that have been, and are continuing to be, built to sideline the professional face-to-face and telephone-based adviser.
We hope this is the first of many innovations for a product that has been stagnating for too long.
Deepak Jobanputra is deputy CEO of VitalityLife
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