A lot changes over a generation – my daughter tells me she can’t imagine growing up without her smartphone and the internet. The vast majority of us would argue that this progress has been encouragingly positive.
There are, however, some changes that take us backwards and can have negative consequences. Look at the protection market. A generation ago there were many more sales of whole of life products than there are today. According to new business data, sales of whole of life products account for less than two per cent of the market. In other developed markets, the sales of whole of life contracts represent a much larger proportion of protection sales.
Yet scores of studies show our increasing longevity, bringing with it a greater burden of pension provision required to meet this change. Such changes in lifestyle have led to people working for longer and even continuing to pay off their mortgage well into their 60s.
This is just one example of the need for protection to continue well beyond the traditional landmark of 60 or 65. It is often too late to purchase the additional cover required at these advanced ages because the cost of cover increases with age.
Many consumers may purchase smaller cover or opt to simply cover their funeral costs through a guaranteed acceptance plan (which show remarkable sales of around 300,000 policies a year). Although this demonstrates the demand for whole of life cover and that these products serve a real need, taking more comprehensive cover at an earlier age might be a superior solution.
Furthermore, a shift towards defined contribution pension schemes, reductions in pensions due to low interest rates and increasing longevity may be contributing to too few people vesting into joint life annuities.
Hence a single annuity accompanied by a whole of life policy may provide an innovative financial solution to meet a real need preventing potential poverty for a remaining spouse.
Increasing longevity, however, is often accompanied by ill health. This means that while we are living longer we spend more time in poor health. Whole of life contracts can also pay out on serious illness, providing funds to cover financial support in the event of poor health.
There is a further need for whole life cover that the majority of intermediaries will be aware of.
Products that provide for provision against inheritance tax through joint life second death term products may offer an affordable solution to this potentially niche market.
It is rather counter-intuitive that in the UK we do not see more whole of life sales when the need for this cover has never been greater.
There are many reasons for this – price has often restricted access, there is a lack of guaranteed premiums, historic FSA permissions have been onerous and the relatively low commission structures when compared to term business to name but a few. These are all areas that have been addressed in recent years, offering intermediaries the tools to meet consumers’ changing needs.
There are opportunities to provide a layer of whole of life cover alongside term-based protection, giving an affordable solution and providing cover that gives customers a guaranteed claim.
The well known quote mentions death and taxes – but these are things that can be protected against financially. It may not be as exciting as acquiring a new mobile phone or laptop, but it does offer lifelong peace of mind.
Deepak Jobanputra is actuarial and product director at PruProtect