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Phil Wickenden: Why IHT protection should not be overlooked

Phil WickendenHands up who likes looking stupid? No, me neither, though the sub-textual retort of my wife’s eyebrow, raised in my direction (or rather the direction of the Cuban heels on my new boots) screams “you could have fooled me”.

She may have a point, but there is a difference in questionable sartorial choices and foolishness that will cause clients to seriously reconsider their relationship with you.

This is relevant, because according to our research the role of protection in inheritance tax mitigation is considered important by almost three-quarters of advisers.

Responses vary in terms of how and why insurance operates in this area, but there is a degree of consensus from advisers that it can:

  1. Enable deferment of decisions and provide short-term cover to allow planning;
  2. Be a less expensive solution than gifting;
  3. Protect that which is not manageable any other way.

That said, the majority believe it has been vastly under-used. There is agreement that there has been an over-concentration on lump sum solutions, with protection relegated to a minor (and sometimes non-existent) role.

What is causing this disconnect may have something to do with the fear of foolishness. You cannot master what you do not practise and our research suggests less than a third of advisers have written more than five IHT protection cases in the past 12 months.

Advisers see big market potential for IHT protection, regarding it as a secure policy for high net worth individuals that, if dealt with early enough, can be a very cost-effective way to increase the net amount estates receive.

But there are some important barriers to overcome first. As for most protection business, it is critical to raise awareness and anxiety in an effective and professional way. With the market focus having been almost exclusively on investment/trust-based solutions, there is an opportunity to re-present protection as a refreshingly simple alternative.

Providers with both protection- and investment-based IHT solutions should work on articulating a clearly joined-up strategy, enabling advisers to confidently put forward their case, along with gifting options, in a far more compelling and holistic way.

Phil Wickenden is managing director at Cicero Research

What advisers are saying

“IHT-related protection has a vital role to play, because it is an inexpensive way to deal with the issue without gifting.”

“It all depends on the client’s needs but it’s good to have it as an option and give as much choice as possible. Providers need to make the public more aware of what the different products are and what they can do.”

“IHT protection is very specialist, so it needs more marketing. There aren’t many people who can afford to specifically pay to protect gifts.”

“Make sure it’s on advisers’ radar. We can’t think of everything; if there are decent solutions out there, we want to know about them. Clients will respond to the options the adviser can provide.”

“Cost isn’t an issue for the clients I deal with, and the cover it offers appeals to them. They just need the education that it’s an option.”

“More client awareness is key. It could be done quite effectively with advertising. More adviser training would also be good.”

Source: Cicero research

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. I’m not sure it is “an inexpensive way to deal with the issue”.
    I am currently reviewing a client whose WOL premiums over the last 5 years have totalled £55k (to cover £300k). The premium is due its first 10 year review, and will probably increase. Given her age and health she could easily live another 30 years and potentially pay over £200k in total. These premiums will have been paid out of the investment income / growth of her invested assets, which clearly represents a big drag on the total that could be inherited by her children.
    This is why I am also looking at other investment solutions to the IHT issue that might not require these premiums to be paid long-term and might lead to a greater amount being left for her beneficiaries.

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