It is hard to imagine what the protection market would be like without menu plans which were launched over a decade ago in 1996.
Some advisers question whether menu plans are relevant in today’s market while others still prefer to use separate covers. There is no doubt in my mind that menu plans are hugely relevant and will continue to be so.
Individuals will not stop having individual protection needs and menu plans fit the advice process like a glove. They allow a tailor-made solution that can evolve with each client’s circumstances. They can also be used to demonstrate protection needs, help close the protection gap and dispel the myth that protection products, particularly life insurance, have become commodities.
Commodity products are purchases like a pint of milk or a box of matches. They are something that people buy without question on a regular basis.
Given the industry is still locked in a period of intense price competition, it is easy to see why some view protection as a commodity but the reality is different. People do not automatically buy protection. They have to know it exists in the first place and, once they do, they have a big menu of cover to choose from and they need guidance.
There are important differences between life products, for example, some include terminal illness cover or extra services. With critical-illness products, there are often major differences between the number of illnesses covered and added value services that can be offered.
We regularly carry out consumer research and people tell us they would buy some protection or more protection if it was cheaper. But it has been cheaper and more protection was not bought. The missing part of the equation here is value.
Ask someone how much life insurance is likely to cost them and I would be surprised if they knew. It is not the cost that is the barrier, it is the fact that they do not value protection enough.
When it comes to helping people understand their needs and the value of protection, menu plans are a useful tool. One of their core advantages is their flexibility. The type, amount and term of cover is flexible. If your client needs £150,000 of life cover on a decreasing basis over 25 years to match a mortgage debt, plus £50,000 of life cover on an increasing basis to cover school fees over 15 years, plus waiver and £50,000 of critical-illness cover, they can buy it all within the one plan.
It is also possible to add or remove cover to meet a client’s future circumstances, often without further underwriting. This enables you to build up a long-term relationship with your client – an important consideration as customers can be lured away by internet deals.
Menu plans also allow you to mix payment styles. For example, you can opt for life cover to be paid out as a lump sum or as an income to cover regular payments for another debt, such as school fees, or to give your client’s family an income – family income benefit – if they die.
Income is perhaps an underused component of most menu products, which is a shame because such cover is tremendous value for money and should be considered if a client has a limited budget.
All this is in line with best advice and helps ensure you are treating customers fairly by not leaving them with huge protection gaps.
A client may come to you concerned about covering their mortgage debt but we all know the mortgage makes up just a tiny part of anyone’s regular outgoings. Most people have loads of other things to protect if they want to maintain their lifestyle.
Menu plans allow you to offer advice on how to protect those other debts and outgoings, building a bespoke plan. The flexibility of the menu plan enables you to tailor the cover to clients’ needs and it can help keep costs under control. You can strike the perfect balance between affordability and the right cover for your clients.
Menu products put advice at the heart of the protection sale. This is important in an industry where price is still too often seen as the only consideration when choosing a protection provider. Headline price is often an illusion.
Clients might think they are getting value for money by choosing the product with the lowest price but advice can usually demonstrate much more value for money locked away in a menu product – two single-life covers rather than one joint cover, for example, meaning potentially two payments rather than one for only a fraction of extra premium.
The menu can also help ensure that you do not lose a sale because your client feels they cannot afford the full amount of cover.
Consider a couple, male aged 35 and female aged 30, looking for life cover of £100,000. This might cost them about £14 for a 20-year policy if they were both non-smokers. As part of the advice process, critical-illness cover is also discussed but an upgrade in their cover to include £100,000 of critical illness-cover could raise the price by over £50 a month. This might be too big a jump and your clients may decline the upgrade offer.
But with a menu plan, you can easily offer a lower amount that is within budget. Adding in £20,000 of critical-illness cover may only increase the premium by £10 and make it much more affordable.
All this demonstrates the relevance of menu plans and how they match the needs, risk profile and budgets of different clients. For our industry to believe these products are commodities devalues the important role that advisers and menu plans play in the market.