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A hole in whole-of-life cover

Why do I believe whole-of-life cover is inappropriate for any need other than IHT planning? Well, in practice, the majority do not do what they say on the tin – they do not last for the whole of the client’s life.

Most plans lapse long before death because the need for life cover has passed or because the client has been priced out of his own policy by the regular reviews. The extra premium charged for whole life, and especially the guaranteed variety, simply does not justify the addition of a benefit that the client probably will not need -cover beyond retirement.

To use Mr O’Halloran’s example, a male aged 20 years would be charged 41.27pm for 250k whole life cover on a balanced basis by the current best value provider on the market. By the age of 69, the investment element he had built up to subsidise premiums in old age has been used up and he is facing a huge increase in his premiums (to around 250pm at current rates) to maintain his cover. He has nothing to look forward to but annual increases in future, all at a time when he is probably on a fixed pension income.

Of course, he may not need as much cover, so he could always reduce cover to around 50,000 and maintain his premiums. But does he need cover at all? He is retired, his mortgage was paid off a long time ago, he has no dependants and his income is guaranteed.

I know Mr Client, we may as well let the cover lapse – you don’t need it any more. Can we forget about the fact that when I sold you the plan we could have arranged a 49-year LTA for just 19.96 and you have overpaid by some 12,530.

To make matters worse,the whole-life figures quoted assume a growth rate of 6 per cent a year, the average life managed fund has grown by just 4.1 per cent a year over the last 10 years. Is it wise to gamble your life insurance on the stockmarket?The simple truth is that I have never yet met a client who cannot put a maximum time limit on the commitment he needs to insure against, that is why we use term insurance.

Life Policies Direct uses modern term insurance contracts that are indeed Crap – Cheap, Reliable, Advised, Preferred. For general protection, the consumer has already decided which offers best value and the regulator is not far behind.

Most whole-life plans are endowments in disguise. The real problem for our industry is the broad-brush approach that the FSA and FOS might adopt towards whole-life cover and its valid but niche suitability. History will prove me right.

Jason KingManaging director,Life Policies Direct

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