I was young once and I vividly recall (OK I can just remember) being taught the basics of life insurance in one of my first days in the office. It was one of my early memories of life in the City along with how long my colleagues’ lunch hours seemed to be and how short the girls’ skirts were.
The lectures I was given might be thought akin to advice nowadays but I was urged to look very seriously at three products when I settled down and found a nice girl to marry. In those days, there was an identikit approach to providing appropriate cover because everybody was deemed to marry at 23, have 2.4 kids and never change their job.
Nevertheless the advice was none too shabby. They urged me to think about a thing called PHI (permanent health insurance) which would pay benefits if you became unable to work. Just so I would appreciate this was a risk, I was shown claim files of people who were likely never to work again. Without banging on about PHI/ income protection (again), it was a lesson and an issue I have never forgotten.
But there were two other products that stirred my interest. The first was family income benefit. A perfect product for the person who wants to provide the same sort of financial security for their family if they die as if they become disabled. There were plenty about then and it was a very popular policy. Why on Earth is it a very minor item now in most companies’ portfolios? It was cheap, easy to understand and a very sensible protection solution.
I have great admiration for the menu plans of today but the FIB was a very straight-forward family protection solution and I would be delighted if we could see its revival.
My life moved on and I did meet a nice girl and I married and settled down. I effected my PHI and FIB and then I took out the third in the triumvirate of essential protection plans – convertible term assurance.
I tried to work out when the CTA went out of fashion and realised it was when the industry got (irrationally) scared about Aids in the late 1980s. It was seen as providing an option against the insurer.
CTAs are less relevant now, given the relative demise of the whole-life plan and the death of the endowment but they are a very good way of buying an insurability option.
The difficulty is that, despite improving mortality, the wafer-thin pricing of term business has led to much more Draconian underwriting. Convertible options do not sit easily in a world of preferred underwriting.
Peter Le Beau is managing director of Le Beau Visage