View more on these topics

Keep it in the family

Now is the time to have a rethink about the advantages of family income benefit and increase the use of this undersold product. Why? Because not only is it often best advice for a client wanting to protect their family but it is also even more suitable during these tough times due to interest rates being so low.

A beneficiary wanting to invest a lump sum is not going to get much of a return right now.

FIB has many advantages. The first is that premiums are lower – on average 35 per cent cheaper compared with an equivalent level term policy. This allows clients to either pay a lower premium or give their family a greater level of protection.

For families, the FIB shape works well as their need for cover generally fades as children grow up and wealth accumulates.

Even if interest rates are good, investing a lump sum can be a daunting prospect. A regular tax-free income that matches the income brought in by their late partner or parent is easy to manage and is one less thing to worry about during a very difficult period.

Many consumers know their family members are not experienced with money and FIB avoids risk, complexity and costs. It also means the beneficiaries cannot blow a lump sum in the early years and be left struggling later on.

So why do so few clients end up with FIB policies? Public awareness is low so it has to be sold. Clients who do not get advice do not get to know about FIB and even those who do are often not told about it. Advisers find it harder to explain and the name of the product often puts people off as it sounds like a state benefit.

Clients are also seduced by the thought of a lump sum, without thinking about how that lump sum is going to pay for their family’s everyday needs for what could be a long time.

And there is another, shameful reason. The best-laid plan to protect a customer’s family with an income is often thwarted at claim stage. Providers offer the option to commute the benefit into a lump sum. Without advice, beneficiaries do not know the advantages of getting an income and often go for the tempting lump sum.

This reduces a provider’s admin costs but may not be treating customers fairly and many advisers feel that taking the time to explain FIB to a customer is pointless if the beneficiaries are likely to end up taking a lump sum anyway.

FIB is a great credit crunch option for many customers. It is also a good way for advisers to compete against the non-advising sellers. Providers should help raise the profile of FIB and do more to help advisers sell it. The practice of commutation should also be rethought so that customers know that their families will have the regular income they want them to have.

Emma Thomson is head of life office relations at Lifesearch


DC pensions plunge 25%

Defined-contribution pension assets have lost 25 per cent of their value, or £140bn, since the start of the credit crunch, according to Aon Consulting.

Pensions need to be fair for all

It seems that someone with common sense has taken an effective role within the FSA, as I read with great pleasure of its decision to cease accruals to the FSA’s defined-benefit pension scheme – albeit this will not take place until March 31, 2010.

How QE is distorting the gilt market

By Mike Riddell The moves in gilts in August were truly exceptional. Volatility in the gilt market (based off 10-year gilt futures) has soared to close to the highest levels seen this millennium, on a par with the eurozone debt crisis of 2011/12 and behind only the global financial crisis of 2008/09. The first distortion […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm