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Flexible whole life continues to decline

Hopes that sales of flexible whole life policies had turned the corner to recovery in 1999 have been dashed this year.

Following years of decline, sales figures for flexible whole life policies jumped from 188,000 in 1998 to 202,000 in 1999 according to the Association of British Insurers (ABI). However, in 2000 the fall resumed with a drop in the number of new policies sold to 148,000.

There are a number of reasons for the fall in the number of flexible whole life policies. One has been the growing popularity of term assurance, which provides life cover for a set sum assured over a set period, such as five or 10 years.

ABI figures show sales of term assurance products rose from 1,162,000 new contracts in 1999 to 1,447,000 in 2000.
Another reason has been the decline in direct sales forces, through which the bulk of flexible whole life policies were sold. Many companies, however, have been closing down or selling off their direct sales teams and this has had an effect on the market.

Although flexible whole life and term assurance fulfil a similar purpose, one or the other may be more suitable depending on the circumstances. A term assurance product offers guaranteed premium levels during its term, while a flexible whole life product will normally have review dates built in to it, after which the premiums can go up.
A flexible whole life product can change if clients&#39 circumstances change, for instance if they get married and want to increase the amount of cover, or if they fall ill.

Also, a flexible whole life product covers the insured for the whole of their life. If someone dies the day after their term assurance product has expired, they are no longer covered and no money will be paid out.
There is also the issue of underwriting. Someone who takes out a flexible whole life policy will only be underwritten the one time, whereas if a client&#39s term assurance expires and they want to take out a new policy, they will usually have to be underwritten again.

Flexible whole life plans can be more expensive than term assurance products. This is because flexible whole life products incorporate an investment element, which leads to higher charges for managing this element. However, a flexible whole life product will have a surrender value if it is cashed in early, while a term assurance product will not.
Flexible whole life policies can be used in a number of planning areas. John Lawson, associate director, sales strategic development at the Bank of Scotland explains how they can be used for inheritance tax planning.
Someone inheriting a property worth £500,000 would have to pay 40 per cent tax on the £258,000 remaining on the value of the property once the inheritance tax threshold of £242,000 has been taken into account. This would result in a tax bill of £103,200.

However, a flexible whole life policy for £103,200 for the original owner of the house can be taken out to cover this tax bill. If the policy is written in trust then this removes it from the estate.

One other use for flexible whole life policies is keyman insurance. This can be used where a business has recently taken out a loan and wishes to protect itself, or it can
be used to cover a vital employee of a company when the loss of that person could be disastrous for the business.

One major development for this section of the survey this year has been Equitable Life&#39s decision to close to new business.
In past surveys, this company has taken the lion&#39s share of first place positions. In last year&#39s with-profits and unit-linked survey Equitable Life had 31 first or second place positions throughout the past performance and own-charge projections tables. This year, however, it is reduced to 14 first places in the past performance sections only.
Looking first at past performance, 11 companies took part in this area of the survey. The figures listed are based on managed funds with a sum assured of £30,000 on policies taken out for premiums of £50 a month for single lives and £70 a month for joint lives.

For five-year past performance, the table is led for the 10th year in succession by Equitable Life for both non-smoking and smoking males aged 30 next birthday. Here Equitable Life has a surrender value of £3,153, down £612 on the previous year&#39s figure for both non-smokers and smokers. Standard Life is second with £2,912 for a non-smokers and a smoker, and Wesleyan is third with £2,396 and £2,376 respectively. In last place is MGM with surrender values of £1,496 and £1,430 for a non-smoker and a smoker respectively.

Commenting on the consistent performance of the company, Neil Standish, senior manager investment marketing at Equitable Life says: &#39Equitable Life fund managers have been directed in recent years to deliver above average performance while taking below average risk. These results show how successful they have been in fulfilling that mandate.&#39

Moving on to the tables for surrender values after five years for non-smoking and a smoking male aged 50 next birthday, Equitable Life is again first with a surrender value of £2,554 for a non-smoker and a smoker. In second place is Standard Life with a value of £2,285 for a non-smoker and a smoker.

Third place is split between Wesleyan, with £1,545 for a non-smoker, and Norwich Union with £1,247 for a smoker.
Last is MGM with surrender values of £878 and £366 for a non-smoker and smoker respectively.

For a female non-smoker and smoker aged 30 next birthday, Equitable Life is top for surrender values over five years, with a payout of £3,150 for a non-smoker and a smoker. Next is Standard Life, with £2,931 for a non-smoker and smoker and in third place is Wesleyan with £2,496 for a non-smoker and £2,399 for a smoker. Bringing up the rear again is MGM, with values of £1,521 for a non-smoker and £1,474 for a smoker.

Looking at the table for joint life policies taken out by a non-smoking and smoking male and female aged 30 next birthday for a premium of £70 a month, first place is taken by Standard Life, with a surrender value of £4,070 for a non-smoker and a smoker. In second place is Wesleyan with a surrender value of £3,483 for a non-smoker and £3,463 for a smoker, while in third place is Norwich Union with values of £2,842 for a non-smoker and £2,814 for a smoker. Last place is taken by MGM with surrender values of £2,277 for a non-smoker and £2,170 for a smoker.

Richard Woods, head of marketing at MGM, says: &#39The poor performance isn&#39t due to investment performance, it&#39s down to charges in the contract that make the flexible whole life product uncompetitive. It is currently under review and we are likely to have a revised product in place by the end of the year.&#39

Moving on to past performance figures for 10-year surrender values for a non-smoking and smoking male aged 30 next birthday, Equitable Life is in the lead with a payout of £8,461 for a non-smoker and smoker. Second is Wesleyan with surrender values of £7,965 for a non-smoker and £7,873 for a smoker. Third place is taken by Norwich Union with £6,731 for a non-smoker, and Standard Life with £6,688 for a smoker.

At the tail end is Legal & General with surrender values of £5,815 and £5,610 for a smoker and non-smoker respectively.

Equitable Life is again first for a non-smoking and smoking male aged 50 next birthday, with 10-year surrender values of £6,353. In second place is Scottish Mutual with £5,202 for a non-smoker and Standard Life with £4,629 for a smoker.

Third place is again split between Wesleyan, with £4,936 for a non-smoker and Scottish Mutual with £4,572 for a smoker. In last place is Sun Life with a surrender value of £4,016 for a non-smoker and MGM with £2,353 for a smoker.

Turning to surrender values after 10 years for a female non-smoker and smoker, first place goes to Equitable Life with a surrender value of £8,481 for a non-smoker and a smoker.

Second place is taken by Wesleyan with £8,427 and £8,406 respectively and third place is taken by Norwich Union with £6,768 for a non-smoker and Standard Life, with £6,731 for a smoker. Bottom is Legal & General, with surrender values of £5,864 for a non-smoker and £5,748 for a smoker.

Looking at the figures for a couple both aged 30 next birthday after 10 years, in first place is Wesleyan with surrender values of £11,754 for a non-smoker and £11,643 for a smoker. Second is Norwich Union with £9,401 for a non-smoker and Standard Life with £9,324 for a smoker.

Third place is split between Standard Life with £9,324 for a non-smoker and Norwich Union with £9,287. Last place is again taken by Legal & General with payments of £8,167 for a non-smoker and £7,860 for a smoker. The companies&#39 own-charge projections in the survey are based on £50 a month premium for single lives and £70 a month premium for joint lives.
Starting with the five-year projected surrender values for a non-smoking and smoking male aged 30 next birthday, Standard Life takes the top spot this year with £2,952 for a non-smoker and smoker. In second place is Bank of Scotland with £2,913 for a non-smoker and £2,824 for a smoker, while in third place is Wesleyan with £2,600 for a non-smoker and £2,550 for a smoker.

Last is Scottish Amicable with surrender values of £418 for a non-smoker and £404 for a smoker.

Gerry Warner, marketing development manager for life products at Standard Life says: &#39Our flexible whole life product forms just a part of our protection portfolio. It is our superb financial strength and investment performance over many years that allows us to provide these returns and to do so well in surveys such as this.&#39

Moving on to projected surrender values after 10 years on policies taken out by a non-smoking and smoking male aged 30 next birthday, Standard Life is again first with £6,715 for both non-smokers and smokers.
Second is Bank of Scotland with £6,536 for a non-smoker and £6,346 for a smoker and in third place is Wesleyan with £6,310 for a non-smoker and £6,170 for a smoker. Last place is split between Scottish Provident with £3,080 for a non-smoker and Scottish Amicable with £3,790 for a smoker.
Examining projected surrender values after five years on policies taken out by a non-smoking and smoking male aged 50 next birthday, first place is split between Bank of Scotland with £2,591 for a non-smoker and Standard Life with £2,314 for a smoker. Second place is also shared between Standard Life with £2,314 for a non-smoker and Bank of Scotland with £2,245 for a smoker.

In third place is Wesleyan with £2,040 for a non-smoker and £1,570 for a smoker. Last is Legal & General with £394 for a non-smoker and £400 for a smoker.

Looking at surrender values after five years for a non-smoking and smoking female aged 30 next birthday, Standard Life is first with £2,971 for a non-smoker and a smoker. Bank of Scotland comes second with surrender values of £2,929 for a non-smoker and £2,873 for a smoker. Third place is taken by Wesleyan with £2,630 for a non-smoker and £2,590 for a smoker. In last place is Scottish Provident with £540 for a non-smoker and £637 for a smoker.

Moving on to 10-year surrender values on joint life policies taken out by a non-smoking and smoking couple aged 30 next birthday, Standard Life takes pole position with a surrender value of £9,376 for a smoker and a non-smoker.

In second place is Bank of Scotland with £9,238 for a non-smoker and £8,939 for a smoker, while in third place is Wesleyan with £8,950 for a non-smoker and £8,700 for a smoker.

Bringing up the rear again is Scottish Provident, with £4,330 for a non-smoker and Scottish Amicable with £4,280 for a smoker. Explaining Scottish Provident&#39s poor showing in the tables, Jo Lister, product information manager at Scottish Provident says: &#39Our actuarial people target to have low surrender values on a 6 per cent interest rate for either 50-year term products or where the insured is aged up to 100. This allows us to keep our premiums low.

&#39Also we market this policy as a protection product, rather than as an investment product, so surrender values are bound to be low.

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