Term insurance is one of the more simple financial products on the market but this does not mean that IFAs are necessarily at a disadvantage.
Direct Life and Pensions managing director Michael Ward points out that two-thirds of term insurance policies are sold by tied agents but that the IFA sector consistently beats tied agents on premium rates.
IFAs say it is usually easy to rebroke a term insurance policy so that the client pays less without any loss of value. Even if the customer is, say, five years older, a change in circumstances – such a giving up smoking – usually means that cheaper term insurance should be available.
Usually there is nothing to be lost by rebroking a term insurance contract unless personal problems in the intervening period could result in a medical appraisal and, therefore, higher premiums.
Legal & General protection director Ronnie Martin points out the necessary safeguard of getting the new cover in place before relinquishing the old policy in case of problems.
He says term insurance rates have seen downward pressure. Other than increased competition, he cites the continuing improvement in mortality assumptions and the cost savings resulting from technological advances, such as IFAs being able to obtain term insurance cover for their clients online without written signatures.
As a simple concept, term insurance is probably the most suitable financial product for direct or online purchase. However, only those with totally standard criteria are likely to find that they will be accepted.
Martin says L&G finds that only 55 to 60 per cent of online applications can be completed online. But IFAs are concerned that even those without special circumstances will not necessarily be getting the best deal unless they get appropriate advice.
Many IFAs simply accept online competition as the present reality. A few are even willing to enter into an auction process, promising to meet any quote the client has already been provided with.
But as well as providing competition, the internet can make the work of the IFA easier, allowing them to easily and cost-effectively source the cheapest and most suitable product for the client.DF Proctor (Financial Services) director Brian Mitchell points out that IFAs will also have knowledge of the market and will be able to point clients in the direction of providers which specialise in different ends of the market.
He specifies Norwich Union as being competitive for older customers and Standard Life for younger clients. But Mitchell is concerned that even though term insurance is not complicated, some people might be purchasing cover online that fails to include the benefits they could have obtained by going to a different provider. “After misselling, we might now end up with misbuying,” he warns.
He singles out renewal options as an area in which customers might not be aware of the differences between different products.
How lucrative is rebroking term insurance for IFAs? Mitchell says: “It does not pay for holidays to Barbados but it does buy the pens and pencils.”
Ward says: “Rebroking will be most successful if your record keeping is good and less so if your records are in a mess.” He adds that if customers are approached properly, most will be willing to have their cover reviewed.
“If you can show that for an extra couple of pounds a month they can get cover of £150,000 rather than £100,000, only a minority will decide to go for the same cover.”