WHAT’S SO SPECIAL ABOUT SPECIAL EVENT BENEFIT?
For baby boomers in particular, guaranteed insurability plays a prudent part in lifetime protection provision for your clients, writes Debra Hale
Special event benefit, otherwise known as a guaranteed insurability option, can be overlooked when considering protection solutions for your clients.
For many of your clients, life can be complicated and things can change in a flash. Life events are often planned and expected, such as marriage or the birth of a child. Most providers allow an increase of life cover in view of these special events.
Many of you will recognise this as guaranteed insurability; this offers a guarantee to the life assured for them to buy additional life cover without having to go through any medical or financial underwriting when they experience any of the qualifying events. There are many qualifying events, such as getting married, having a baby, adopting a child, increasing a mortgage or an inheritance tax (IHT) liability. The cover can be increased before a certain age, up to certain limits.
Whilst guaranteed insurability is a valuable feature, there is a much wider relevance to consider here in terms of the current UK demographic. Some clients may suffer unexpected changes in their lives as they get older, a major illness or health deterioration, for example, and offering them guaranteed insurability can help to reduce risk and alleviate concerns. Obtaining the cover whilst they are younger and healthier can be a godsend when things start to go wrong.
We know we are living longer – a child born in the last 15 years can expect to live to the ripe old age of 93, and alarmingly one in three will live to be centenarians. We’ve come a long way in the last 100 years when life expectancy was a mere 63, imagine that!
I’m proud to share that my granddad is fast approaching his 103rd birthday. He’s still mobile, capable of his own day-to-day care and still extremely lucid, so for him and his peers this living longer thing appears to be good news... or is it?
Longer life expectancy reflects an improved standard of living and prosperity, but it also creates issues. We need more money to maintain our standard of living into our later years.
There are pressures on long-term care provision; an enormous social problem that sadly most of your clients are going to get caught up in whether they like it or not.
Interestingly, we have more people in the UK over the age of 80 than those under the age of 18.
The over 80s crew could be considered luckier than most as they are experiencing longer and relatively healthier lives than other generations. Having lived through more austere times and typically having much simpler diets combined with a more impressive exercise ethic, the older generation has got it good in so many ways.
Let’s not forget though that some of the age-related illnesses and conditions experienced by this older age group, such as dementia, do impact on the economy and welfare of our society.
What about the ‘baby boomer’ generation – you are sure to have some of these as your clients? This is perhaps the most interesting and influential age group in the UK, presenting the biggest risks, both in terms of the economy and the overall state of the nation’s health.
This population, now including over 65s, is growing at a much faster rate than the under 65s due to the combination of longer life expectancy and the ageing of those born in the baby boom. Over the next two decades the population aged 65-84 will increase by 39% and for the over 85s by a staggering 106%.
The baby boomer faces certain lifestyle-related health issues that the average over 85-year-old does not. This age group has been able to enjoy a far more hedonistic lifestyle than their elders, embracing pastimes and life choices that post WWII economic and social progression have allowed through the decades since.
The downside of these choices means that illness and disease related to obesity and a less healthy lifestyle have increased for this generation.
Underwriting lifestyle-related illnesses can prove to be cumbersome and clients may find their premiums loaded and some may even be declined cover.
In an ideal world, whole of life provision would be the preferred choice, starting cover at a younger age when your clients are usually healthier and the premiums are more affordable.
Yet whole of life cover is mainly used for two reasons: to cover end-of-life funeral costs or to mitigate IHT. Typically, your clients do not buy into either of these needs until they reach middle age at least.
This is where the concept of guaranteed insurability on a much broader level plays a prudent part in lifetime protection provision for your clients.
A convertible term policy can give your clients a more affordable term policy to begin with and enables them to convert into a whole of life contract at a later date within or at the end of the policy term.
They will not need to provide any further medical evidence as they do not need to be reassessed by underwriters. So even if their health has changed since they took out the original plan, they can convert on the same underwritten terms as set at the outset.
The premiums will be re-costed at their age on conversion to the new whole of life policy, but they could convert partially during the term and effectively phase in the full conversion over the term of the plan and manage the policy costs along the way.
Most life providers provide special event benefit or guaranteed insurability options, but not all of them offer a conversion option.
The Zurich term plan can be set up with a term to age 84 next birthday so your clients can have the benefit of guaranteed insurability up to this point, then on conversion the cover continues for the rest of their life or as long as the premiums are paid. This allows them a long-term, simple, yet effective protection option.
The next time you discuss protection provision with any of your clients, perhaps highlight the special event benefit. For your baby boomer clients, in particular, a convertible term policy offering guaranteed insurability for life could be very special indeed.
Debra Hale is a protection specialist at Zurich.