The market for over 50s life cover plans is set to grow and, says James Eaglen, the products are already in the market
With 26.1 million adults in the UK having no life cover in 2009, and the elderly population set to increase, non linked whole of life insurance policies could represent a real opportunity for independent financial advisers.
Whole of life policies typically cater for two very different sets of consumer needs: commonly, unit-linked policies are targeted at high-net-worth customers as a means of mitigating the individual’s inheritance tax (IHT) liabilities, while non-linked policies are generally guaranteed-acceptance plans sold to the over-50s as a low cost means of helping to meet funeral expenses, or in order to leave a lump sum to surviving relatives.
As a well established and active provider of Over 50s life cover plans Engage Mutual has witnessed first hand the dramatic growth within the over 50s market for non-linked whole of life, both in size, by product variant, and in relation to the number of providers, particularly over the past five years.
According to the latest Mintel report, total premium income from whole of life policies in 2005 stood at £73 million. This figure is forecast to rise to £146 million in 2014.
Over 50s guaranteed acceptance plans are a niche product which lend themselves well to meeting the specific needs of the aging UK population. There were roughly 17 million over 50s in 2006, but this is expected to grow to 21 million by 2020. In a market where life expectancy is increasing, the appeal of plans with no medical questions is self-evident.
Whole of life guaranteed acceptance products are known for being simple and affordable. This simplicity, which allows for a speedy application process, is appreciated by advisers and clients alike.
Acceptance without a medical is guaranteed and providing premiums are paid, a tax free lump sum is payable on death. Specifics vary across providers, but in general the full sum assured is not payable if the policy holders’ death should occur within the first or second years, but a return of premiums (and an extra 50% on top in some cases) is paid. The majority of providers also offer accidental death benefit during this period which typically pays a multiple of the sum assured.
Affordable starting premiums
With affordable starting premiums available, and potential sum assureds of up to £25,000, the product could be potentially relevant to a broad customer base. The sum paid out would be counted as part of the estate and may be subject to IHT.
However, for most policyholders, this sort of life cover is taken out with a view to leaving a modest amount to help with funeral expenses, or to provide a small financial gift to relatives, rather than to help with larger liabilities such as mortgages. It is, in many cases, possible to have the sum paid directly to the funeral director, although this does not constitute a funeral plan.
From the adviser point of view, over 50 guaranteed life cover fits nicely within a protection portfolio, and has the potential to create a good revenue stream. Many clients and potential clients are not aware that the product exists, so opportunities to introduce it as a budget alternative to other forms of protection are wide ranging. In addition, for some advisers adding over 50s guaranteed life cover to their range of products ensures a more holistic approach to meeting individual customer needs.
In an attempt to limit the financial impact on customers who are living longer, premium stop dates are now a standard product feature within most over 50s products on the market. These became commonplace from 2007 onwards, before then, premiums used to be payable until death. A number of providers now cease premiums when the customer reaches 90, while others have adopted premium stop dates depending on the age of the customer at application.
There have been some key developments in the direct market, frequently with providers adding value to the product through the provision of additional services. These have included free help lines and advisory services in areas such as bereavement and long term care. Research conducted for Engage Mutual revealed that covering or contributing to the costs of a funeral is a key product appeal of over 50s life policies. In recognition of this, wider product development led to the introduction of direct payout from the policy towards the customer’s funeral provision by means of a legal charge arrangement.
An interesting area for potential future consideration could potentially be around building in some measure of inflation protection, but balancing the complexity of this against the simplicity of the core product will be the challenge.
Guaranteed acceptance is reassuring for clients who may be put off by a drawn out application process, while advisers will not be required to undertake lengthy question sessions with their clients. The only variants determining the sum assured for any given monthly premium are the gender of the applicant and whether they are a user of tobacco.
This ease of application is welcomed by clients who do not wish to deal with lengthy paperwork. Similarly, the returns weighed against the input by the IFA in terms of time spent explaining the product and completing the application process are appreciated.
When choosing a product provider, advisers might bear in mind that dealing with a smaller organisation which takes a personal approach to its customers can also support the IFA’s business and client relationships.
A buoyant market, guaranteed over 50s life cover has attracted a range of players, who operate within the direct, affinity and financial advice market. While Axa has the largest market share, followed by Scottish Widows, Engage Mutual also remains a key player as the third largest provider in the market (source: Swiss Re).
With some providers now offering immediate cover online, the appeal of guaranteed over 50s life cover to advisers and clients alike remains, it’s simplicity and ease of application. Offering an opportunity to revisit customers’ protection needs and potentially open the door to new clients revaluating their financial priorities in the wake of the recession, an affordable plan that meets the needs of consumers with potentially less cash to splash, is a valuable tool to draw on.
James Eaglen is protection product manager at Engage Mutual Assurance
