Bulletin 07, 2007
Round up
2 – the number of life insurance rate changes announced since the last bulletin, Royal Liver and BUPA
20 – the number of life insurance companies currently represented on the Income Protection Taskforce
13m – the number of people who went to work while ill, according to research from Benenden Healthcare
£47m – Bright Grey life insurance and protection new business for Q1, up 22% on the same period in 2006
£261m – the value of as yet unclaimed shares in Standard Life since the company floated in July 2006
£31.3bn – the amount of gross mortgage lending so far this year, the highest on record, according to the CML
Life insurance – Why it’s not always a case of ‘the cheaper the better’
Let’s not be silly, price is always a key factor in any market. However, in protection, and even in plain old life insurance, price is not the only factor consumers should consider.
Here are a few reasons why:
Benefits – Most couples buy joint life lump sum life insurance cover. However, presuming there is an IHT liability (i.e. the total wealth, including the house, totals more than £285,000, which is the case for most life insurance buying families in the UK) then, by being wise rather than cheap, it is possible to treble the amount of money the family would receive for a similar premium on a claim in the most vulnerable early years. This can be achieved by following three steps: switch the lump sum to an income, switch the joint life insurance policy to one life insurance policy each, and write both life insurance policies under trust. If the family can receive 3 times as much for the same premium then buying the cheap one without considering your options is potentially very wrong indeed.
Underwriting – Up to half of applicants for life insurance and protection need additional underwriting information, such as a doctor’s report or medical, in addition to the main application form, which is often 25 pages long itself. For those whose health, occupation and family history is not perfectly clean the chances are that the cheaper the starting premium is the harsher the underwriting will be – and the higher the final premium, once underwritten, will be. In our view, those with less than perfect health should often avoid the cheapest life insurance providers specifically in order to save money.
What consumers need to know is that only those with no underwriting issues at all should believe that the cheapest life insurance quote actually means the cheapest cover. What they also need to know is that once life insurance cover/premiums have been loaded that must be disclosed in all future applications. We think it is better to shop around for the life insurance underwriter least likely to increase the premium, rather than the one who purports to have the cheapest premium.
Protection – Buying online or direct may sometimes be cheaper than an IFA – it often is not and depends on individual circumstances. But if you do, you must be aware that you cannot complain to the Ombudsman about the suitability of the life insurance policy if it does not do what you thought it would. With life insurance and protection, unlike just about every other area of financial services, when you realise you’ve bought the wrong type of policy or rendered it invalid by not disclosing all the right things, you cannot change your mind and buy the right life insurance policy because to be frank you are now either dead or ill and you can’t turn back the clock.
Buying life insurance with advice includes the peace of mind caused by knowing that if by any chance you find yourself in trouble and with an unsuitable product, you can rightly seek redress from the Financial Ombudsman Service.
Summary – Is buying the right life insurance product more important than the price? We think so, especially if you bought the wrong thing. As someone clever once said ‘I’d rather pay more for something I need than less for something I don’t.’
Our own research shows that, when advised, 7 in every ten clients make a significant change to their buying decision, which by default must mean that 7 in 10 make some form of mistake when they buy life insurance and protection products without first taking advice. We believe these are the points that protection buying consumers should be made aware of because focusing consumers’ eyes on the price of life insurance - and nothing but price - could hurt many who believe what they read or hear.
** Journalist competition reminder **
This month’s competition asks ‘How many life insurance and protection applications will LifeSearch receive during the calendar month of April?’ The closest entry wins an iPod shuffle and £30 HMV vouchers. To enter just reply to this email with your guess.
Cover poll
More than four in five advisers do not think an intermediary, who is not independent, can truly act on behalf of the end customer, according to COVER's latest web poll. 83.3% of the respondents think that a broker, who is tied to one or more firms, would not be able to give fully unbiased advice to their clients. While only 16.7% disagreed.
This month's survey asks whether providers are failing to treat their customers fairly by not backdating positive changes to the terms and conditions of critical illness policies.
Comments of the week
‘Critical illness cover is an expensive product that would be dearer still – and totally unsellable – unless insurers put all claims under a microscope and accept premiums from people whose claims they are almost certain to reject a few years down the line. Not only is it expensive but the information required for a claim to be met is incredible. Were consumers to realise what is involved, in terms of giving prior information and making a claim, most would never take out the product.’
Nic Cicutti,
Freelance journalist
Quote taken from last week’s Money Marketing
‘Financial services markets are dynamic and innovative. To be effective, regulators must be able to adapt their regimes to keep pace with market changes. We believe principles which focus on an outcome are more enduring while at the same time better foster innovation and competition.’
John Tiner,
Chief Executive, FSA
Heroes of the week
BUPA
As well as a number of other improvements announced this week BUPA will now apply a reduction in the premium if either cancer or multiple sclerosis is excluded from critical illness cover at the underwriting stage.
This might sound odd to some readers but normally the price remains the same when a condition is excluded, which is why we welcome this change.
MARATHON RUNNERS
A huge well done to everyone who ran the London marathon on Sunday, in particular all the journalists who raised money for charity including Sam Dunn, Myra Butterworth. Andrea Tryphonides, Ben Marquand and Lucinda Devine.Back to Life Insurance Bulletins
