The type of life events that protection covers may not make for a cheery conversation, but advisers must review the protection needs of Baby Boomers, writes Ellie Duncan
As the Baby Boomer generation reaches retirement, they might be thinking about how they will enjoy their work-free later years – whether it’s getting out in the garden more, holidaying in far-flung places or simply getting on with some much-needed home improvements.
Pension needs and inheritance planning are likely to be high on clients’ list of priorities in meetings with their financial adviser, but it is possible that protection will be much further down the list.
However, Baby Boomers would be wise to consider how their protection needs may be about to change as they retire.
“Everybody should be reviewing their protection needs on a regular basis, especially at major life events,” stresses Alan Knowles, managing director of Cura.
“Retirement is one of those key moments that matter in life, that people need to prepare for.”
They need to think about what benefits they currently have through their employment that will come to an end but would still be valuable to have.
— Ian Smart, Royal London
It is certainly true that as those Baby Boomers get further into retirement, their health may deteriorate, in which case, they might benefit from some form of protection.
“For the Baby Boomers, where retirement might be within sight or already there, it is an extremely important time to review protection needs,” he says.
“It might be that the mortgage is paid off, the kids have left home and pensions are now being drawn. Therefore, the obvious protection needs become much less.
“But on the other hand, is there a potential IHT liability?” he asks. “Have provisions been made for a funeral? Has consideration been made for later life health conditions, such as dementia?”
Many Baby Boomers may have taken for granted the workplace benefits received while in full or part-time employment and may feel the need of these when they no longer have them.
Ian Smart, product architect at Royal London, suggests: “They need to think about what benefits they currently have through their employment that will come to an end but would still be valuable to have.
“For example, any death-in-service benefits will no longer be available, meaning they need to consider whether they need to replace this. They may also have had other benefits, such as private medical insurance, group critical illness or group income protection, for which they will no longer be eligible.”
Many assume the Baby Boomer generation ‘has it all’. But there will be plenty of Baby Boomer clients entering retirement who still have a mortgage to repay and other financial obligations.
Paul Yates, product strategy director at iPipeline, points out: “Although baby boomers are typically in a stronger financial position than their subsequent generations, factors such as declines in final salary schemes, moves to self-employment and children who have definitely ‘not yet flown the nest’ may counteract their financial resilience.
“To add to this, careers are changing, with a move to flexible retirement as people try to delay drawing down on pension funds (and need to keep paying in). Many people have not paid off their mortgages at retirement, with some having taken interest-only mortgages.”
He observes these clients may have debts and commitments in later life with little financial cover and, therefore, need to keep earning beyond the ‘traditional’ pension age of 60.
Many clients in this demographic are likely to consider critical illness cover as one of the most important types of protection to have. But in fact, they may have a range of protection needs.
It is also important to review any policies your client already has that may no longer be needed.
— Emma Walker, LifeSearch
Mr Yates says: “If anything happens, they need a level of financial protection which is best met by a combination of life, critical illness cover and income protection.”
Ideally, clients will have thought about CIC and life cover before they reach retirement age, given that premiums will be lower when the client is younger.
Alan Lakey, founder of CI Expert, explains: “By way of example, a healthy non-smoking male aged 45 can buy £100,000 of whole life for £97.28 per month. If he delays until age 65, it jumps to £232.11 per month.
He adds there is an identical scenario with critical illness cover, with an even higher likelihood that the cost will quickly become prohibitive with increasing age.
“Again, a £100,000 life and critical illness plan to age 80 for a healthy, non-smoking male aged 45 is available for £106.83 per month. If he delays until age 65 it jumps to £421.60 per month,” Mr Lakey notes.
Starting the conversation
For those who feel they have left it too late, protection providers are increasingly offering flexible cover.
As Mr Knowles explains: “Life cover can currently be sourced to age 95, or on a whole-of-life basis. Some critical illness plans can run until age 85, with the odd provider offering to age 90 or whole-of-life – albeit, the cost of premiums may be quite high.
“Many income protection plans can now run until age 70. Additionally, some whole-life plans have care options built in and Vitality recently launched FrailCare cover as a continuation of its SIC policy.”
So, how can advisers make sure they have the right protection conversation with their Baby Boomer clients?
“When buying protection, it’s not just about finding the right policy,” says Royal London’s Mr Smart. “Having the right policy but setting it up in the wrong way won’t necessarily help clients achieve their goals and could actually make things worse. A good adviser will also make sure the cover is set up properly.”
Emma Walker, chief marketing officer at LifeSearch, admits it is often not a “cheery subject” to bring up with clients, “but it’s important and now may be the time to consider later life planning, including wills and funeral arrangements”.
She adds: “If they don’t have any cover in place, it is important to properly understand the client’s medical history and know which products are most suitable.
“It is also important to review any policies your client already has that may no longer be needed.”
Ellie Duncan is features editor of FTAdviser and Financial Adviser