Is it time for intermediaries to look at whole of life cover as more than an Inheritance Tax planning tool and to take a multi-usage approach, asks Jennifer Gilchrist.
For example, a whole of life policy could be used in the first instance to protect a client’s mortgage but once the mortgage has been paid off it could be used to take care of the children’s inheritances. If by that stage the client has become short of money they could even get the children to continue paying the premiums, as third-party payments are permitted industry wide.
Similarly, whole of life policies can be used for a range of business protection purposes such as loan protection, shareholder protection or key person cover. They have built in flexibility to allow cover levels to be adjusted in response to business events via guaranteed insurability options. So a business owner could take one out initially to protect their business, flexi it as the business grows and, once they have retired, switch it to an alternative usage.
The alternative usage does not even have to be for the benefit of the next generation. It can just as easily be to provide security for a wife or partner. A policy could potentially be used for a surviving spouse to buy a widow’s pension, therefore enabling the original annuity purchase to secure a higher income on a single life basis than would have been possible had a contingent spouse/partner’s annuity been bought as well.
As a general rule of thumb, a male aged 65 taking a non-escalating annuity would receive an income around 15% higher than if he took an annuity with spouse/partner contingent annuity for a 60-year-old female partner.
As the emphasis on providing holistic financial planning is destined to gain momentum from the introduction of the Retail Distribution Review, next year will see the focus on multi usage whole of life really start to come into its own.
So, whether it is needed before 21 December or afterwards, it is time for advisers to start focusing on the product’s potential role in their protection toolkit in meeting the protection needs of their clients.
Jennifer Gilchrist is senior product development manager at Scottish Provident
