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Where are they now?

It could be time to revive some past products.

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

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Do you suggest that we bring back low cost endowments with insurability options, extra DB, CIC, PHI and TIB?

    Why did PHI become known as IP?

    I’m old and showing my age, ungracefully I might add, the grumpy old men on TV often make me laugh but sometimes I say ‘right on’ only have my teenage daughters look at me as if I am mad.

  2. Craig Mcmcgowan 19th March 2010 at 12:23 pm

    Low cost endowments with all the bolt-ons were, in principle, not bad products, however changes in tax relief, the mortgage market and some very dodgy product providers very weak with profits funds sounded the death knell to them.

    There is still a 2nd hand market for these products, so they must be giving a profitable return to somebody. Maybe there is a gap for a saving product out there with life cover, just not link the end part to a mortgage and you are laughing. Although I imagine the strain on capital for many providers would make these products too uncompetitive, but again if it is not liked to a mortgage and is a savings product with other adding value features who knows return of the low cost endowment?

  3. Peter makes a number of sound points – I recall my grandfather telling me exactly the same (no, not really).

    We oftentimes forget the basics and search for convoluted solutions.

    PHI was a foolish title whereas IP means exactly what it says. Even endowments and low cost endowments have their place.

  4. Hmmm. I think there are two points here worth mentioning.

    Clients may well have both investment objectives and a need for life and/or CIC…but if you ‘do the numbers’, I’d be surprised if these needs ever quantified together in the way that a bundled product like a LCE ever did.

    They should have been binned long before they were. The reality is that they became the tax-inefficient route the day Nigel Lawson introduced PEPs. They only lasted as long as they did because of the stranglehold Life Companies used to have on distribution.

    The second point to remember is that historically, the Life Companies have made money through our clients investments, and lost money on tricky things like underwriting. That’s why financial or convertibility options went out of fashion.

  5. there is a gap here and whoever manages to fill it could make a mint, it needs to be simple, people buy simple, advisers like to advise simple, there must be companies out there with itchyfeet actuaries who are willing to take the bet on…..come on product providers what are you waiting on

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