The menu-based protection package is one of the financial services industry's major success stories of the last few years. It is sometimes difficult to believe that it first appeared in the UK as recently as 1996.
The convenience factor is a major plus for clients. There is just one set of documentation to maintain instead of several batches of paperwork from a variety of providers.
A single direct debit means that it should be much easier to keep track of regular payments. It may also lead to save on bank charges. The total cost of cover should be lower than it would be if the various components were spread across a variety of schemes from several providers. Although the basic subscription rates for the different elements might be somewhat higher, the total outlay should work out less.
This is because there would be a single plan fee instead of three or four or more. With protection-oriented products, the scheme charge tends to take up a much higher part of the cost than with contracts that are focused on investment.
Another consumer attraction is that of flexibility. At the start, clients can mix and match the types of protection (life, critical illness and income protection), how benefits are to be paid (lump sum or by instalments), their amounts and whether they are to be decreasing, level or increasing.
Some elements of cover may be arranged on the joint lives of a couple and others on their single lives. Later on, clients can alter the protection blend to fit changes in their lifestyle, circumstances and responsibilities.
The good news for IFAs is that consumers would have difficulty in navigating their way around such a wide range of choices if left to their own devices. They need an expert adviser to guide them.
Back-office systems only have to deal with a single set of policy records and commission-tracking and reconciliation are made easier, so the IFA benefits from convenience, too.
Since 1996, the menu-based protection package offering has made considerable progress. Certain providers have focused on carrying out research among consumers and the IFAs who advise them. These activities have led to a number of important innovations. Here are just a few of the features and facilities to look out for.
For a given total period of cover, clients can choose between three separate subscription bases.
First, they can pay a guaranteed fixed amount throughout the whole term (but please note that improvements in diagnostic and treatment techniques mean that this option is becoming increasingly expensive for critical-illness cover).
Second, they can choose a subscription rate that may be reviewed up or down every five years, depending on the experience (numbers of claims, admin expenses, investment returns earned on policy reserves, etc) of the provider.
The third option applies to the life and critical-illness cover components and enables clients to take their cover in a series of five-year or 10-year renewable stages. At the end of each stage, they have the right to extend their protection for a further five or 10 years. The cost of the extension will depend on their age and levels of subscription rates at that time.
The income protection part of the package is unusual in that clients can, if they wish, choose to extend the cover beyond the age that they expect to retire. The protection can continue for the remainder of their lives. As the post-retirement definition of incapacity is the failure to carry out three out of six named activities of daily living, this component effectively changes from IP to long-term care insurance.
There are three possible levels of LTCI benefit. If the client should already be getting payments under a conventional IP claim, these would simply continue. Otherwise, the regular instalments would be up to 50 per cent of earned income in the year before retirement or, for someone who was not working, would be those applying to a “houseperson” or someone who was unemployed.
Making a claim under the CIC component of the package need not mean that the protection on offer would come entirely to an end. There is an optional extra that would enable a client to start a new policy and reinstate a limited level of critical-illness protection afterwards. If, for example, they make a claim for heart attack under their main plan, they could start a replacement scheme at any time within the following year.
Naturally, the new contract would not pay out for a second heart attack. But it would provide much-needed cash if the client should develop one of the unrelated conditions covered such as cancer. Another CIC optional extra offers the payment of a cash benefit if a client should suffer any one of a number of bone fractures, including arm and leg.
There are also two phone helplines, which are integral parts of the product. The first offers clients and their families direct access to qualified nurses who can provide up-to-date information and guidance on a wide range of healthcarerelated topics 24 hours a day 365 days a year.
The second is available to anyone making a claim under the CIC component of the package. They can use it to locate and contact specially selected consultants who are recognised for their expertise in the treatment of their particular condition.
The menu-based protection package has made tremendous strides over the seven years since its first appearance on the UK financial services scene. We wait with interest to find out what the next seven years will hold.