Life assurance – not all it seems

Dominic Thomas
Dec 2022  •  11 min read

When life assurance is not all it seems

Life assurance is one of the few solutions to the question ”how can I help?” when posed to a family that has just experienced permanent, life-changing loss.  Over the three decades that I have been advising clients, this is, without doubt, one of the most challenging.

Most of us live as though we have an abundant supply of tomorrow. Rarely does anyone really wake and decide that life assurance (or any financial protection) is the major task to get done today.

Death is of course a subject that literature and our culture regularly address, yet in those intimate spaces of our lives, it’s a topic rarely discussed, perhaps one of the last taboos. This was never more starkly revealed to me when (many years ago) someone told me not to talk of death and Wills because he believed that it would make it a reality. Naturally he never became a client (I only work with mortals).

LIFE ASSURANCE – BAD SISTERS

I was intrigued by a series on Apple TV called ‘Bad Sisters’.  I enjoyed the series, but wanted to address the premise of the drama – which confused me initially. I will not ruin the story at all by simply saying that a claim against a life assurance policy is being challenged by the adviser, which in my world does not reflect the truth.

A WASTE OF MONEY?

Advisers arrange financial protection (life assurance, critical illness cover and income protection). These are all policies that everyone takes out hoping to never have to claim on them, because to do so means something awful has happened to you. We all actually want the cover to be a ‘waste’ of your money… though using as little of it as possible to secure the right, most appropriate balance of cover.

MAKING A CLAIM

In the event of a claim, it is the insurer that assesses the legitimacy of a claim against the policy terms. In the case of life assurance, it is fairly evident if a claim is valid (the assured has died). In more nuanced cover (income protection and critical illness), the assured is alive and unwell, the question is therefore “is the condition being suffered covered?”. In both circumstances fraud is not uncommon, though I would suggest it is pretty rare and most claims are paid out fairly swiftly and appropriately. An oversimplified for instance, is that a broken arm is not grounds for a claim for a critical illness or inability to work long term, the loss of an arm, however may be grounds, particularly if you are a surgeon.

BROKER BEWARE…

The series, whilst set in Ireland and therefore not regulated by the FCA, has the insurance broker Claffin & Sons investigate a claim for life assurance. Whether in Ireland or here in the UK, this is an alarm bell for authenticity. The small family run insurance broker is reluctantly run by son Thomas Claffin after his father committed suicide. Early on it is evident that all is not well, a database of no policies and concern about the collapse of the business. This is not how things work, unless fraud is being committed.

I can assure you that in the event of a claim, I and probably any adviser will be eager to get you funds from the insurance claim as this is probably the most obviously meaningful aspect of our work, protecting you and your family when disaster strikes, providing funds to make the financial pain disappear.  Advisers will certainly want to ensure that a claim for the more complex cover is worth claiming for (broken arm example), but will then seek to hassle the insurer for agreement and payment of funds to you the claimant. Some insurers are better than others in terms of efficiency, but we have never had a valid claim refused.

Claffin didn’t arrange cover, they simply committed fraud, taking and living off the premiums and hoping that their clients didn’t make a claim. That is fraud (honestly I am not spoiling the excellent series and plot).

A PAPER TRAIL WELL DOCUMENTED

You will have a policy document with an insurer and be paying monthly premiums or in some circumstances, annually. These will show on your bank statement and are not paid to the adviser or broker. Even with all the mergers and subsequent name changes for the insurance company you are paying, you will receive a plethora of correspondence, the main challenge being to keep up to speed of who say Commerical Union, Clerical Medical, Friends Provident, Skandia (and so on) now are. You have a unique policy number. If in any doubt get in touch. If you are unsure if you have enough financial protection or perhaps too much now, please ask.

As for the series by Sharon Horgan, I thoroughly enjoyed it. My purpose here is not to suggest otherwise, merely to explain how an insurance claim would work in practice. Here is the trailer for the series, with a cast that includes….

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Life assurance – not all it seems2023-12-01T12:12:41+00:00

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
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