Do You Need Financial Protection?

Solomons-financial-advisor-wimbledon-bloggerDo You Need Financial Protection?

A question I’m often asked is do I need financial protection? frankly this is rarely the question… most people are really asking if insurance is worthwhile. Given the scandal of PPI, and a general mistrust of financial services, it is little wonder. Add in the reality that there is a general assumption that such contracts are designed to favour the insurer and the lawyer involved, many question whether the insurers would ever pay out.LifeHappens

OK, there is little I am going to be able to say to convince anyone that is suspicious about “the system”. All I can do is point you to data about claims paid and also relate my own experience. In all the years I have been advising clients, I have unfortunately had a number of claims. All of them were accepted, only one was not paid out at the full amount (they paid 73% citing non-disclosure of material health matters). We are currently considering whether to contest this or not, I can see both sides of the argument – but obviously represent my client, so will represent his interests.

In essence there are really only three types of financial protection I deal with for individuals. So let’s cover what these are.

1. Life assurance – you die, it pays out. Price is everything, there is pretty much nothing between providers on terms and conditions, however there are a myriad of types of life assurance policy and enormous differences in cost.

2. Critical Illness Cover – this is much more contentious. Terms and conditions are everything, quality is upmost, price is secondary – you pay for what you get. However cost still varies enormously. This cover pays out if you are diagnosed with a serious medical condition – it pays you. The main conditions are cancer, heart attack and stroke….all stuff that most of us would prefer not to think about, but probably know several people (depending on your age) that have experienced this.

3. Income Protection – this  pays your income if you cannot work due to incapacity and an inability to return to work. Generally cover would pay until you are better and can return to work, or until the policy maturity date (invariably your retirement date). It isn’t so contentious, these days a lot of employers provide cover. Certainly terms are important – most basic being does it pay out if you cannot do your job or any job or any job for which you are suitably skilled/able.  Cover is always less than your total income, as this provides an incentive for the claimant to “make a recovery” and also reduces fraud. Cost varies considerably. Generally cover is a percentage of income, up to a maximum and starts typically after 3, 6 or 12 months of “being unwell”… the longer this “deferred” period, the cheaper the cover. This isn’t accurate… but gives you an idea.

Which job would you prefer?

Job A: £60,000 per annum

Job B: £59,500 per annum plus £38,675 per annum until 65 if you have a long term illness.

As I say, its not accurate, lots of if’s but’s and maybe’s…. but hopefully I am conveying the concept.

So how much cover do you need?

That depends entirely on your circumstances, the cost of your lifestyle, your age and your level of debt and if you have anyone that is relying on you. It is generally true that the more you need cover, the less you can afford it… think of a young family who have a tight budget…precisely because they have a tight budget they need cover. Some people don’t need any cover (because they have ample resources). In essence they are self-insuring, however some of these people would prefer to pay for insurance so that they pass the risk to the insurer rather than bear it themselves, so using funds for other, more enjoyable purposes.

Reviewing Cover

So you have a load of old policies. You have some cover. Sometimes it isn’t a good idea to change the cover –  the policies where terms and conditions matter generally are weaker and more vague these days than they once were. However some can be reviewed. Don’t forget on the whole your debt should be reducing and you and your family, if you have one are older, less dependent.

FT FAAwards2015

Financial Times (FT) Financial Adviser Awards 2015

Yesterday I attended the FT Financial Adviser Awards – having been nominated for “Protection Adviser of the Year”. I’m pleased to say that it was a podium finish (2nd)… which isn’t bad (the winner is a thoroughly good adviser that I respect – genuine congratulations). Of course I would have preferred to win – but hey, out of 24,000 advisers in the UK… I, like Nico Rosberg need to keep improving. However I don’t really know the exact reason why I came second (unlike F1 there isn’t a final lap chequered flag. I assume it cannot be based on the amount of protection business I arranged over the last year (consider the big networks of advisers or Bank employees), so I presume it is the quality of the advice process, perhaps also because I have always removed commission from protection policies (reducing the cost for clients) which is still unusual and not a regulatory requirement of “adviser charging rules”. Perhaps it was the case study, business model or interview that revealed the quality rather than the quantity of our protection advice. At this stage I don’t know, but what I do know is that if you find yourself in a nightmare scenario – the inability to earn, or life threatening illness or worse – suddenly bereaved, having cover in place that removes financial stress makes all the difference in the world. Because sometimes in life stuff happens that we don’t like.

Dominic Thomas

 

Do You Need Financial Protection?2023-12-01T12:40:06+00:00

PPI is taxing

Taxing interest in PPI refunds

As you will have gathered, I’m not a fan of Payment Protection Insurance and never have been. However if you come across someone with this and they have had a successful refund with interest, be warned. Leading accountants are suggesting that the interest is liable to taxation and will need to be declared as income as part of your self-assessment returns. Now, given that 31st January is the deadline for tax payment without a penalty this doesn’t leave much time. However, acting honestly with HMRC is frankly the only approach worth taking. Honesty is clearly not a word associated with the Banks and insurers that sold millions of these policies and as we all know, the PPI claims companies are largely just as dishonest, it is hard to work out who really wins in these situations – even good advisers that didn’t sell this (myself included) have all had numerous calls and queries from people double checking and reassuring them that Income Protection is very different from PPI. Here’s a short video from Which? explaining the nuts and bolts.

PPI is taxing2023-12-01T12:23:26+00:00

G-Day – nothing to do with Australians

G-Day Something Down Under?

G-Day has nothing to do with Australians, but one might chuckle that it has something to do with down under. G-Day is actually Gender Change Day… yes you did read that correctly (no I didn’t – its actually Gender Directive). Before you start shouting at your computer that you’ve just about had enough of excuses for more greetings cards, this is in fact a European… no, not yet…directive (hold on) that makes it illegal for insurers to discriminate between male and female. In other words men and women must be charged on the same basis – much like this week’s news that equal pay for equal work, except of course that when it comes to insurance, there is nothing so unfair as equality. Eh? What I mean is that women live longer (sweeping generalism, but generally true) so they get cheaper life assurance. Now they won’t.  It also applies to car insurance and annuities, in fact any insurance.

Brussels for Christmas?

So in the interests of showing what this may mean (because the truth is that we don’t actually know yet…. remember I am something of a truth fan, despite the cost). Anyway a fairly major insurer emailed me yesterday (Liverpool Victoria – credit where it is due). G-Day is set for 21 December 2012 (21/12/2012)… methinks that the Brussels powers like amusing numbers. Anyway the table below is LV’s attempt to outline their take on potential changes.

Product type

Currently, on average…

                      Potential impact of Gender and I minus E changes**

 

                              Male Female

Income Protection

Women pay 65% more than men                           +20% -28%

Critical Illness (with Life)

Men pay 10% more than women*                            +6% +16%

Term

Men pay 10% more than women                            +3% +22%

Underwritten Whole of Life

Men pay 20% more than women                             -5% +15%

As all tables come with a caveat or two…..”There are so many factors affecting premiums that it is impossible to give a single definitive figure that will apply to everyone. The extent of change will vary by provider, will differ by product class and be determined by the individual circumstances of the client. Added to this, we expect to witness a fair amount of re-pricing activity in early 2013 as providers attempt to get to grips with the new gender neutral world.”

More Unintended Consequences

You will quickly gather, that women will be paying more for most insurance. I’m going to stick my neck out and guess that this probably was not the Eurocrats intention. What it does mean is that you will probably need to review your protection arrangements if you are a woman with income protection. Admittedly this is one insurers take on life, but LV are generally pretty competitive. They also have a dedicated website called “no more guesswork“.

Early Christmas for commission hungry insurance salespeople? surely not!

I may have bored you senseless about the new adviser charging regime starting on 1st January 2012. Ironically this does not apply to insurance, so I’m guessing that commission based advisers will be fairly eager to get people to switch their cover (generating new commission) so be warned. There will will be some advisers (like ourselves) who simply charge a fee for the work and remove the commission entirely. I write this as yet another email arrives telling me that a very well known company can offer me even more commission with their new charging structures (note it wasn’t LV).

 

G-Day – nothing to do with Australians2023-12-01T12:23:06+00:00
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