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End of term

How wrong can Tom Baigrie, Jason King and the FSA be with regard to term insurance? asks Terence O’Halloran.

Term insurance gets their vote because they say, other than for inheritance tax provision, our need for life cover is not open-ended. Well, yours might not be, Tom, and Jason’s won’t be because he will have made a fortune selling term insurance.

Similarly, mortgages have a fixed duration. Do they, Tom? Didn’t you know that people change their mortgage like they change their socks? They may need insurance for 28 or maybe 30 years. What are you going to do about the extra bit, Tom? Maybe Jason can help you there because he will try and sell some more. The problem is health not wealth.

Would I use a whole-life policy to protect a mortgage? Well, I used to use convertible term insurance. This was a fixed-premium, higher-priced term insurance which you could convert to a whole-life or endowment policy. They do not do it anymore because the fixed price put companies off.

There is more to life than protecting a mortgage, which is why I tended to use (chauvinist that I am) family income benefit as a more or less complete family package for the ladies, with a small whole-life policy designed to pay funeral bills, but a more substantial lump of whole-life insurance for the men, bread winners that they are, so they did not have to worry about their health or their wealth and, if they were fortunate enough to make it in the longer term, they could adapt the policy to cover IHT.

An American, AL Williams, wrote a very plausible book in the 1970s and enabled MetLife to become the biggest term office in the US. His view was buy term and invest the rest. Unfortunately, by the time AL Williams disappeared from view, many people had seen their health decline so they could not replace it with decent permanent insurance and were forced to spend money they had saved to replace their car or upgrade their house.

It is not the industry that dictates what life insurance people should or should not have – it only dictates what is available to them.

The FSA, in its zest for regulation, has merely accelerated the move from pooled risk to individual risk. What the term insurance credo shouts aloud is personal risk. It is no wonder it is supported by banks and supermarkets because that is their credo also. Sell the product, forget the customer.

Tom points out that life insurance premiums are hopefully going to be a waste of money. Oh, no, no, Tom. Life insurance assures people that their premiums are not going to be a waste of money. They are going to pay out one day.

Having been to three funerals in the last 10 days, I can tell you that people are awfully glad when an insurance company pays them enough money to settle the bills.

Whole-life insurance is cheap by any stretch of the imagination – it gives whole-life assurance that those who live after the deceased has long gone will have the wherewithal to settle the bills and provide for the family or extend the life of a business. Life insurance is not about price, it is about benefit.Whole life delivers a whole lot more value for money.

Terence O’Halloran is principal of O’Halloran & Co

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