Life insurance companies do not have the term insurance field to themselves. There is a much older player around and one that has much to offer to IFAs and the corporate and individual clients they advise.
Lloyd's of London, the world's oldest and best known insurance marketplace, provides life and critical-illness cover for policy terms of up to and including 10 years. But there is effectively no minimum period – policies can be arr anged for a day or a week.
Premium rates are very competitive and underwriters are used to handling applications for big sums assured, often, millions of pounds.
IFAs will also find that pro viders at Lloyd's tend to have a much more flexible and app roachable way of doing things.
The attitude is one of “How can we handle this case?”. IFAs are encouraged to talk to the underwriter – the key decision-maker – direct.
Term insurance at Lloyd's can be arranged to cover a whole host of different needs. Take the example of keyperson protection. Businesses need to insure their human assets just as much as they do assets of the physical kind and yet only a small minority get around to doing it.
While virtually every firm covers its buildings, plant and stock in trade against fire, flood, theft and other perils, only a small minority insure key personnel who generate turnover and profits. All too often, it is a case of the sales director's desk, PC and car being covered while the sales manager is not.
This is an area where the UK lags a long way behind North America. In the US, one in four businesses carries key person protection of some kind while in the UK the figure is just one in 20.
A term insurance policy at Lloyd's will often fit the bill.It is simple, it is cheap, the maximum term of 10 years should more than cover a key executive's service contract. The underwriting team will adopt a realistic approach to risk assessment.
IFAs active in the corporate protection market should be aware that for a policy arranged to fund the costs of replacing an employee and help make up for the resulting loss of profits, there is also an excellent chance that the local Inspector of Taxes will treat the premiums as an allowable business expense so they qualify for relief for corporation tax. The employing company should always check this out first – in writing.
This does mean, however, that the sum assured payable if the keyperson should die or develop a critical illness during the period of cover would probably be treated as a trading receipt and taxed as such.
The employer should consider increasing the sum ass ured to allow for the potential tax bill at the tail end so that, in pure net cost and net benefit terms, it makes little difference whe ther the Inspector of Taxes allows the premiums as a business expense or not.
If corporation tax relief is available, the employer sho uld consider grossing up the sum assured to allow for the potential tax bill at the claim stage.
There are certain things that the life insurance providers at Lloyd's will do that life companies will not.
For instance, they will write policies in currencies other than sterling – provided there is a genuine need. Pre miums and any claims are payable in dollars, francs, pesetas or whatever.
Trade is now on a global scale and national borders are not the barriers they used to be. US and Contin ental businesses often imp ort vital personnel from head office to run their organisations in the UK.
The process is two-way, with UK firms sending expatriates to run their operations overseas. Often there is a need for keyperson insurance but in a currency other than sterling.
There is also commercial finance. The dollar is the world's leading currency and business loans are frequently arranged in dollars where both lender and borrower are based a long way away from North America.
Take the hypothetical but not untypical example of Fernando Vasquez, who heads, and is the major stakeholder in a company which plans to develop a hotel complex in the Caribbean.
With a track record of successful ventures of this kind behind him, a consortium of banks agrees to lend $20m for the project.
However, recognising that Fernando's entrepreneurial skills are fundamental to the development's success, the lenders asked for short-term life insurance cover of $10m on his life as a form of additional security for the loan.
Cases of this kind may be rare but they can be very worthwhile. There is plenty of scope for foreign currency term insurance cover of the more everyday kind. Foreign-owned businesses in your area are an excellent place to start.