Royal London

Never too late for protection

Simoney Kyriakou

Content plus editor, FTAdviser

There are many reasons advisers should help older clients with insurance needs.

Insurance is sold not bought – this is a well-worn adage in the protection industry.

To some extent this is true: it’s not a comfortable conversation to have with clients (‘would you like to spend money for something you may never see the benefit of, just in case at some point you get ill or die earlier than expected?’).

It’s a difficult conversation to have with millennials, for whom the idea of sickness or their own mortality seems several lifetimes away – which is ironic, because the younger and healthier you are, the cheaper the premiums.

However just because it can be much cheaper for clients to take out critical illness, life insurance and income protection when they are young, does not preclude advisers from broaching this subject with older clients.

Expense is a red herring

For Martin Bamford, chartered financial planner for Surrey-based Informed Choice, expense should not really be a big consideration, considering the value of appropriate insurance products.

As Baby Boomers head towards retirement, statistically, they are more likely to develop an illness that could prevent them from working, yet they tend to ignore this need. --- Jennifer Gilchrist

He says: “There is a perception insurance becomes too expensive with age. But the Baby Boomer generation, often considered to be wealthy and fortunate, are as much in need of insurance as their children and grandchildren.

“Unless you can genuinely afford to self-insure against risks, then transferring those risks through buying insurance policies is a financially savvy move.”

Mr Bamford adds: “In our experience, Boomers are pleasantly surprised when they discover the actual cost of insurance relative to the catastrophic financial impact a disaster scenario would have on their lifetime cash flow.”

Moreover, as Chris McNab, head of protection propositions for LV=, comments: “While it is known that customers who take out insurance early on will benefit from lower premiums, it is never too late to take out insurance.

“Taking out a protection policy can ensure customers have a much-needed safety net for them and their loved ones.”

Pyramid of need

Jennifer Gilchrist, protection proposition design lead for Royal London, believes too often people – including older generations – take out life insurance, when in fact income protection should be the one that is considered first.

She refers to the ‘pyramid of need’, which shows that 37 per cent of adults have a life policy, but for the average 30-year-old, non-smoker, there is only a 3 per cent chance for both male and female that they will die early.

However, only 7 per cent claim to have income protection cover – while the chance of being made redundant, or being off work for two months or more, is 27 per cent for a male and 44 per cent for a woman.

This highlights the need for income protection, especially among those in their 50s, for whom trying to get back into the workplace in the event of redundancy or illness is a serious concern.

Ms Gilchrist explains: “Our research showed more than 50 per cent of people aged 55 and over did not think that protection products were real and genuine solutions to their needs’. Just 1 per cent had income protection.

Many Baby Boomers will need to have decent whole-of-live cover in place to address any inheritance issues. --- Tom Conner

“But as Baby Boomers head towards retirement, statistically, they are more likely to develop an illness that could prevent them from working, yet they tend to ignore this need and claim these policies will not pay out, or feel they don’t need it, or it is too expensive.”

The reality is, she adds, this group should consider all three protection products, and check what cover is available from their employer.

Inheritance planning

Baby Boomers, perhaps more than any other generation, actually have more of a reason to want to take out protection: they have more to insure against in terms of setting aside an inheritance for their loved ones.

This is the view of Tom Conner, director of intermediary firm Drewberry, who explains: “AS the wealthiest cohort this country has ever produced, Baby Boomers have a lot more to protect than the generations that came before and after them.

“Unlike younger generations, they generally do not need cover to protect the roof over their heads – as it has usually been paid for – and they don’t need cover to protect their families, as most will have seen their children grow up and start families of their own.

“However, many Baby Boomers will need to have decent whole-of-live cover in place to address any inheritance issues.”

This is a key point, as Mr Conner continues: “They may also want to convert their generous pensions and savings into a decent lump sum that can be left to their loved ones tax-free once they have gone, and whole-of-life cover written in trust is still one of the best ways to do this.”

Holistic advice

Insurance for Baby Boomers does not necessarily have to be expensive or complicated, with many insurers now looking at the person’s overall health and wellness, and gauging premiums based as much on lifestyle as on actuarial assumptions on age.

There are also different types of insurance that might apply to your older clients. For example, Mr McNab says: “If people think traditional life policies will be too expensive, or they will not be accepted because of their age, they may want to consider a 50-plus product, which is designed specifically for people aged 50 to 80, and will have no medical or health questions.”

Andrew Pennie, head of pathways for Intelligent Pensions, believes it is important for older people to take stock now and prepare for later life with proper financial planning.

He says: “Many baby boomers will already be taking pension benefits and others will shortly be planning to do so. Those who are still to take benefits need to review what they already have and establish whether their current financial resources will be sufficient to provide the standard of living in retirement they are hoping to achieve.

“Irrespective of which stage a baby boomer is at on their retirement journey, regulated advice can provide the answers and support to help them avoid the many pitfalls and achieve the best possible retirement outcome.”

For Ms Gilchrist, the importance of having a qualified adviser on board to help guide people’s protection needs, is paramount.

She adds: “A protection recommendation to people who fall into this category is not always going to be an easy sale, but as advisers appreciate the value of these products, and the peace of mind these could offer if their clients were to make a claim, means they are already rising to this challenge.”

Simoney Kyriakou is content plus editor for FTAdviser

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