With so many unpredictable factors in play, it’s clear that fixed term protection may not be able to fully address today’s real needs. But what about the alternative: renewable plans with low starting premiums?
When I started in financial services in 1980, most risk products were written to age 60/65, then the normal retirement age (NRA), depending on gender. Yes there was unitised whole of life, but most people thought that by this age their children would be independent and they could enjoy retirement without having to worry about paying further life cover premiums.
How the outlook has changed. I wonder how many of today’s clients expect to be truly financially independent and risk-free in protection terms by their mid-60s? How many will be satisfied that the fixed-term life cover plans that were once the mainstream choice are still a suitable recommendation for today’s more uncertain times - and tomorrow’s.
The good news is that on average we are now healthier and wealthier, with a much greater life expectancy; and a very significant proportion of us are also fortunate enough to own our own homes. The proportion of owner-occupied households in the UK has increased steadily since the 1980s to a peak of 71% by 2003.
The not quite so good news however is that after reaching a peak of 71% in 2003, home ownership has been slowly but steadily declining to around its current 63%*. At the same time many of the other long-held assumptions that underpinned people’s financial plans have also proved less than robust.
The average age of a first time buyer for example has increased, as property prices move further out of reach and the ability to save for a deposit while paying rent is increasingly hard. And the record low interest rates that ought to be a boon to these first-time mortgagees are instead discouraging them from saving in the traditional high street products.
How many of your clients have remarried later in life and perhaps taken on the responsibility for younger families later than planned? How many expect to inherit substantial assets from mum and dad only to realise that frozen IHT rates will consume a large chunk of their expected wealth? In many cases the ageing parents themselves will become reliant on their family – including financial support for extra care.
As a result of these and other socio-economic influences, the age at which most of us can consider ourselves truly free of financial liability - from our children and from our mortgage - has been pushed further down the road as more and more of us are finding that the pattern of life we had once imagined for ourselves have been replaced by far less orderly circumstances and unforeseen obligations.
With so many unpredictable factors in play, it’s clear that fixed term protection plans are unlikely to be able to fully address today’s real needs. Although their costs are fixed and level, the liabilities for which the cover is taken are often anything but. But what about the alternative: renewable plans with low starting premiums? Although this approach has always been more flexible than fixed term and with more attractive initial costs, the increase in premiums at renewal has often been a nasty surprise.
However, Old Mutual Wealth offers Protect rolling term, with cover levels and costs that can be adapted when life’s circumstances change and that, uniquely, discloses and guarantees upfront, the premiums payable at each future underwriting-free renewal. Protect rolling term has no maximum expiry age and is also one of the few plans that includes critical illness cover for the whole of the client’s life.
No matter how your client’s cover needs change in the future, they can be certain of one thing: they will know in advance exactly what the cost will be in 10, 20, 30 and 40 years’ time. It’s guaranteed
If you think that could lead to review opportunities with clients who could benefit, please talk to your protection team at Old Mutual Wealth, or go to www.oldmutualwealth.co.uk/protection for further information.
* Decline in home ownership: The English Housing Survey, 2013/14 published by the Department for Communities and Local Government. Feb 2015.