It’s easy to get stuck in a rut, to keep doing the same thing day in day out. We have all heard the saying if you do what you have always done, you will get what you’ve always got.
This adage applies equally to financial planning as to other walks of life. Intermediaries can be blissfully unaware that unfavourable impressions developed of product types have become outdated, particularly when it comes to life assurance.
Many advisers never seem to look beyond term assurance. It does what it has always done, it pays out a sum of money within a chosen period of time but nothing if the policyholder doesn’t die within that specified term.
However, it’s a good time to think about something different. Whole of life cover will pay out a lump sum on death but there is no restrictive term to contend with. None of us know when we are going to die, so why restrict our life cover to a specified term?
Now is a very good time to reconsider your views about whole of life plans. These plans are very often pigeon-holed as an expensive inheritance tax planning tool which carries with it some investment risk. But the products have changed.
A growing number of whole of life products have now stripped out the investment element and offer guaranteed premiums alongside the traditional reviewable ones. This enables financial planning with a whole of life plan to be done with more certainty.
It also means that advisers can sell whole of life plans without the FSA permissions to conduct investment business. Commission can be paid in the new RDR world.
So, are the new breed of non unit linked whole of life plans still aimed only at those with an IHT liability to address?
Well, the simple answer to that question is no. So maybe it’s time to give whole of life another chance and consider it as a viable alternative to term assurance in certain situations?
Looking at the flexible increase options is a good place to start.
Providers understand the varied uses a whole of life plan can have. A good plan will have as varied a range of increase options as a term product. These are based on life events and include marriage, birth or adoption of a child, mortgage increase, promotion or salary increase.
Most of us can relate to at least one of these life events and this will be true of the clients in your client bank.
In addition to the life event tailored increase options, some providers recognise that whole of life plans can be equally viable for business clients.
Increase options cover events such as an increase in business loan or mortgage, increase in the value of a shareholding or an increase in the value of the client’s share of the business.
So if whole of life plans offer as much post sale flexibility as term products why not look at your client bank and identify those who could benefit from protection which can evolve and change as their needs change?
There is nothing to stop a couple using a whole of life plan to protect a mortgage initially. But once that mortgage has been paid off then the plan could be used for a totally different purpose: such as ensuring that a surviving spouse can invest to provide an income or passing on money to children or grandchildren.
This latter purpose does not have to involve IHT planning. Many people under the IHT threshold may still wish to earmark money for their next of kin. Whole of life cover written in trust provides an ideal way of ring-fencing this for them, taking it outside of the policyholder’s estate thereby ensuring that beneficiaries are paid promptly by avoiding the need for probate.
This approach is becoming more popular because traditionally the bulk of wealth passed down to the next generation has tended to be tied up in the family home.
An increasing number of elderly people are now having to sell their homes or unlock capital from them via equity release plans to pay for long term care costs or simply just to make ends meet.
But let’s not ignore IHT planning. Flexibility is equally important for those wanting to use a whole of life plan for IHT purposes.
Flexible increase options which allow policyholders to increase their sum assured in response to an increase in the value of their estate leading to a higher tax bill or a change in the legislation which can result in a higher tax bill should be on the shopping list when choosing a whole of life plan.
Overall, planning is made easier with some plans now offering a choice of guaranteed and reviewable premiums. Most clients understand the concept of a guaranteed premium which does not change throughout the life of the plan. This can help to avoid difficult conversations which can arise following a reviewable premium review when, after 10 years, the premium has to increase to take account of the age of the policyholder in order to continue with the same sum assured. The new breed of whole of life plans offers the choice of premium type – making the plans more appealing to a larger number of clients.
So, with so much flexibility on offer is it time to consider whole of life and create new protection opportunities for your clients? Or will you stick with term assurance?
There are of course times when term is just what is needed, but to give a truly holistic financial planning service, then you cannot afford to ignore the new breed of flexible whole of life plans.
Jennifer Gilchrist is senior product development manager at Scottish Provident