Civil partnerships give same-sex couples the same insurance status as married couples - making guaranteed insurability options (GIOs) more important than ever, writes Ian Noble
Sir Elton John and David Furnish made history - and hit the headlines - when they were among the first gay couples in England and Wales to register a civil partnership.
Their lavish celebration following the ceremony at Windsor's Guildhall stopped traffic in the area but it is unlikely the happy couple stopped during their big day to think about guaranteed insurability options - GIOs in industry shorthand.
They certainly should have done but they are, of course, not alone in failing to pay as much attention to GIOs as they should.
It is unfortunately all too often the case that independent financial advisers (IFAs) and their customers talk about GIOs when a policy is taken out but forget all about them further down the line when the GIO could be extremely useful. Both IFAs and clients need to be more focused on GIOs and their potential benefits.
Minumum hassle
IFAs will be well aware how GIOs work and how they can benefit clients. Essentially GIOs allow customers to increase their level of life or critical illness (CI) cover subject to certain limits without further medical check-ups within a set period of time after a specific life event. This removes the need for further underwriting and can be especially helpful if a client's health has deteriorated. Even if a client is perfectly healthy the GIO is worth having because it enables them to increase their protection with minimum hassle and paperwork.
Major life events include moving house, having a baby, adopting a child or getting married. The change in lifestyle can increase the need for life insurance and CI cover and an IFA would not be doing their job properly if they did not advise clients to react to such events. If the client already has a GIO they should consider taking advantage of it.
Same-sex couples can now, thanks to the provisions of the Civil Partnerships Act, which came into effect shortly before Christmas 2005, effectively get married. Civil partnerships are not precisely the same as marriage despite the media's insistence on talking about gay weddings. But for our purposes they are basically the same.
Civil partnerships allow same-sex couples to make a formal, legal commitment to each other. There is also a formal court-based process for ending a civil partnership, which is similar to divorce. Some insurers have even started offering policies covering partners against the breakdown of their civil partnership.
Couples in a civil partnership receive the same legal treatment as married people when it comes to major financial matters such as inheritance and life assurance.
There is potentially a major demand for civil partnerships. The Government estimates that by 2010 between 11,000 and 22,000 couples will have entered into them. Councils have already taken bookings for around 1,200 civil partnership ceremonies and it is estimated around 4,500 will have been formalised by the end of this year.
Heterosexual couples who have engaged in so-called "common law" relationships might wonder why they are not included in the change in the law.
"Common law" marriages are not recognised in English law, despite the name. Many of these couples assume that if their relationship breaks down there is some legal protection for the partners. That is not the case.
The law currently treats them as separate individuals with no rights on or liabilities to each other. There is no automatic ability to take out a life assurance policy on each other and they have no rights as next of kin.
It is considered that civil partnerships, however, do deliver those rights and same sex couples who become civil partners are treated as if they are married.
This is to be welcomed on a financial level as if a couple have made the commitment they will have entwined their finances and will require some legal protection.
Same-sex couples
The Civil Partnerships Act means GIOs can be offered to couples in civil partnerships. For the adviser the requirements are exactly the same with the only change being that instead of a marriage certificate a civil partnership certificate would be required within the specified timeframe.
The Act therefore creates a business opportunity for IFAs and a chance to offer other products and services to same sex couples.
Couples can now take out life assurance policies on each other and have unlimited insurable interest. They also now have the same rights in terms of inheritance tax and can claim the proceeds of policies as next of kin.
GIOs are an important part of that process as the couple will already have gone through - or be considering - a major life event in the shape of taking out a civil partnership. In the future they may also have home moves or the adoption of a child to consider.
It is not just new policies that are affected by the change of law. Potentially the changes can be applied retrospectively to policies that are already in force, creating another possible source of new business.
The benefits of GIOs are plain and they apply, of course, to more than just married couples and those in civil partnerships. More complex finances are even better suited to GIOs as they are available for increases in inheritance tax liabilities and for business assurance as long as the original policy was taken out for the same purpose.
However, the essential point about GIOs is that they encourage IFAs to stay in regular contact with clients whether they are married, in civil partnerships, or simply living alone.
Flexibility is the name of the game in protection products and GIOs are an important part of flexibility when it comes to protection products.
Clients need to be able to choose from a menu of options including life cover, CI, income protection, permanent disability cover, elderly care cover and waiver of premium.
They should be able to use products to help with inheritance tax planning.
Clients should be allowed to pick and choose the cover they want and should be able to increase and decrease it as their finances and personal circumstances change over time.
The GIO plays a part in that process as it allows a client to choose when they start a product how they intend to plan for the future. Clients value flexibility as the increase in sales of protection products over recent years following the introduction of menu products shows.
Flexibility, though, is about more than just choice. It is also about the flexibility to change. Menu products enable clients to save time and money by removing the double charging that can occur on separate plans. Clients only fill out one application form and only go through one underwriting process.
When the plan is in force the products can be changed so clients can add benefits, increase benefits and alter the product at will.
The GIO plays an important part in the process as it enables the client to increase critical illness or life cover on major life events - within certain constraints - without having to go through further underwriting.
Future claims
The cost to the insurer of providing GIOs to clients has to be reflected in the pricing of the product because claims in the future may turn out to be higher than the sum originally underwritten if the client exercises the right to increase cover under the GIO. This may deter some clients.
However, the appeal of flexibility should assure clients that they are receiving something worthwhile in return for the extra cost.
Flexibility to change is an appealing prospect to many clients as it fits more with their lifestyle. They no longer need to scrap one policy and start again if their circumstances change.
IFAs, though, need to remember that flexibility means responsibilities for them. If they recommend a product on the basis of its flexibility and its GIOs they should make sure that the flexibility is used.
The responsibility comes with the benefits of opportunities for IFAs. A GIO is a reason to stay in touch with a client and to ensure that clients exercise the options when they become relevant.
The law has become more flexible in recognising the different sorts of relationships people enter into. Protection product flexibility enables IFAs to adapt to the change in the law and GIOs are an important part of that change. That creates an opportunity for IFAs to improve their business as well as improving the products on offer to clients.
