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Commentary

The FSA’s sensible fears at the misselling of whole-of-life insurance have aroused the legendary Terence O’Halloran’s ire at those of us who regularly recommend term insurance.

In truth, I write this article thanks to some serious arm-twisting from my term insurance-recommending advisers, whose relative youth means that they have no idea of the wrath and scorn that Terence will pour over my reputation.

I am old enough to remember Terence’s vitriol on what turned out to be the wrong side of the endowment debate of the last millennium and so it is with some trepidation that I make the following points.

Like any industry or trend, what we thought was right sometimes changes and, eventually, no matter how right it seemed at the time, right becomes wrong.

If whole of life is better advice than term, then it must be worth a great deal more than term because it costs a great deal more. The FSA, Jason King, many others and I agree that in the case of IHT provision, it indeed is worth using whole-life cover. But we also all disagree with Terence and say that term is the better advice for all other normal life cover needs.

Term gets our vote bec-ause, other than for IHT provision, our need for life cover (and CIC and IP) is not openended. If you are protecting a mortgage, a family or your earnings, you expect there to be a time when your debts are paid off and your wealth such that you do not need to pay the insurance premiums anymore. You may subsequently need to protect against tax bills but sensible budgeters spend money on what they need to spend it on, not trying to cover all the possible liabilities of the distant future.

They rightly ask why they should pay more for something they may never use. In compliance terms, advising wholelife cover as the right solution to a young family’s needs sounds to me like advising them to buy something that is more expensive when they are poorest and that does not fit their current need but might well be suitable later. Sounds a bit like an endowment actually.

What happens when the price goes up in later years, as happens to most whole-life policies at each review? With (guaranteed rate) term, you know exactly where your premiums stand for the period you plan to run the risk you are covering. Guaranteed rate whole-life plans are out there but at what price in comparison?I wonder if I could chance this perspective on it. Life insurance premiums are hopefully going to be a waste of money, either because you will not die young or your dependants will not need the money when you die old. So you should generally spend as little on them as possible in as closely targeted a manner as possible for as short a time as possible. You should then save to secure your long-term future, which method works whether you live or die.

I hope that Terence can accept that view as valid. In truth, though, our real mut-ual enemy is not other advisers whose views differ from our own, it is those many new competitors that claim price is all that matters in protection and that people who have no understanding of family income benefit, income protection or what own-occupation TPD might be are as well off buying without advice as with it.

We should focus our energies on pressing the FSA as to why they are happy to allow, indeed encourage, the mass misbuying that occurs when people buy protection products without advice. Let us go together to the barricades, Terence.

Tom Baigrie is managing director of Lifesearch

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