Sung by icons of the 1960s, the popular song actually takes its lyrics from Alexander Pope’s essay on criticism in 1709 (he’s the one on the left!). Although the fools that Pope targeted were the literary critics of the day – the saying still remains relevant today in many senses, that is: “the rash or inexperienced will attempt things that wiser people are more cautious of”
As experienced financial advisers and business owners, you know that leaping into an opportunity without thought can be fraught with danger from a regulatory as well as profit perspective. Therefore, prior to engaging resource in to developing those opportunities, it makes sense to scope out the size of the market first.
In recent years in the Protection space there have been attempts to develop new products to capture potential new markets including Funeral Plans, Over 50s Plans, Long Term Care Plans – all of which have had varying degrees of success or failure in the intermediary space.
In reviewing opportunity therefore, it makes sense to concentrate on areas where there is clearly a substantial market.
On a left field, but related, note – on 13th March 1984 many life assurance salesmen thought Armageddon had arrived and the death of the life assurance industry was upon us! Yes, the fateful day when LAPR was abolished and tax relief was no longer available on Life Policies.
Forwards thirty years then, where tax relief is still available in a £1.35 trillion market, and one could be accused of being a fool for not at least looking at the market to which the opportunity relates.
Business Protection Market
In a recent study with organisations such as the Institute of Directors and British Chamber of Commerce to bring an insight into where the gaps, and indeed the opportunities, lie in the corporate protection market, Legal and General came up with some startling figures:
Their aim was to allow IFAs to work with business owners in order to help them realise their human capital vulnerabilities.
Often, we get lost in figures explaining the size of the Protection Gap on individual debt in the UK, but rather than specifically understanding the numbers, suffice it to say that the scope is huge in three main areas, namely:
- Corporate Debt
- Shareholder Protection
- Key Person Cover
With the average age of a business owner being 49.5 and the Sums Assured normally higher, an average business protection case is around 3x that of a Personal Protection Plan.
If we concentrate on risk, in the same survey business owners were asked about scenarios that would have the greatest impact on their businesses - let’s just review a few:
- 61% said the death or Critical Illness of the Business owner or a Key Employee, yet in looking at the facts, 75% of business owners under the age of 40 have no Life Assurance cover whatsoever
- Almost all Business owners will have insurance for theft, yet only 1% of premises are broken in to
- 74% of businesses have not got the wherewithal to survive for more than a year if a Key Person was to die or become critically ill
- Over 50% said that they would like their beneficiaries to get a fair value for their shares, yet 27% of business owners had no will at all, and of those who did, only 42% have made a will in which they have left their shares to a named beneficiary.
The list goes on, but the headline is: Customers are telling us they have a need, and we know IFAs have a solution to that need.
Whilst we could continue to reel off statistics about the opportunities, as is often the case in this type of article, we at Paradigm Protect are looking for practical help to support firms and help them take advantage of them. One such area is Relevant Life Plans:
For those not 100% familiar with these plans, a Relevant Life Plan is a tax efficient single-life Death in Service benefit for employees or Directors of a business. The policy proceeds are paid to the Trustees (employer) and the benefit is written under Trust for the life assureds’ beneficiaries.
Therefore, a Relevant Life Plan can be almost half of the cost of taking out cover in the normal way – see the example below:
- The employer pays the premiums to provide the employee and his family with peace of mind, whilst the employee works for the business.
- The employee pays no NI or Income Tax as a benefit and the Employer receives Tax Relief on the premium.
- Employees including Directors as well as salaried partners are eligible for the benefit and relief.
Different Providers have slightly differing takes on Relevant Life and all have evolved their own USPs to tempt IFAs in to using their plans. Below is a brief synopsis from some of the Key Players in the Relevant Life and Business Protection markets to use as an “aide memoire” to their own key benefits.
Aegon make the point that the company doesn’t always have to be a trustee when taking out a Relevant Life Plan. If for example, the employer is a smaller owner-managed company comprising one shareholder/director, it may be more practical for the employer not to be appointed as a trustee to avoid any delays in the event of a claim.
In addition, they also make it clear that the death benefits payable under a relevant life policy don’t form part of the employee’s pensions lifetime allowance and the premiums paid won’t have any impact on their annual allowance either.
They offer a 'Declaration of trust for a relevant life policy', which is a discretionary trust specifically designed to be used in conjunction with their Relevant Life policy.
Aegon’s trust is portable; this means that employees can keep their protection cover in place even if they change employer.
If the employee leaves the employment of their current employer, their new employer could choose to take over paying the premiums straight away. Alternatively, the employee could pay the premiums themselves for a while leaving the policy in the Declaration of trust for a relevant life policy. A subsequent new employer could then choose to fund the policy at a later date and be appointed as a trustee.
Over the last 15 months, Ageas have been analysing the kinds of business protection cases they receive in general, in order to refine their processes and enhance both broker and your client experience of their products. Following this, they have reduced the number of questions they ask, to make it easier for more businesses to apply for cover. For example, earlier this year they removed a whole block of financial questions for applications under £750,000 life insurance and £500,000 critical illness cover, and changed some rules so that fewer get referred to manual underwriting. Alongside their changes to how they underwrite people who are overweight or obese, many businesses and business owners have found applying for cover significantly easier.
They stress they have developed a ‘Starting from Yes’ philosophy, an approach which has led to generous underwriting terms – meaning lower incidence of GPRs, and quicker financial underwriting for higher sum assured cases.
Their online application system means that over 80% of applicants will receive a decision without needing additional evidence from a GP, plus, with a trust form available online, it’s now easier for you to get everything in place right from the start.
Having included the Best Doctor’s service on their products, clients can rest assured they have access to the most reliable medical opinions and support available worldwide. The children of Ageas policyholders, on the other hand, have access to Winston’s Wish – a charity that specialises in helping children through the trauma of losing a parent, carer or sibling.
As you may expect, PruProtect concentrate on well-being and wellness, as it is inherent in their philosophy. They make the point that small businesses have often been restricted in their ability to invest in and benefit from health and wellness programmes for their employees due to the costs involved.
However, employees in small businesses are often more valuable than those in larger ones. PruProtect have launched Relevant Life Policy (RLP) with Vitality because they don’t think it should just be big businesses that have the tools to attract, motivate and protect their employees. RLP with Vitality means that clients who own small businesses can now enjoy big business benefits. In addition to taxation benefits available on all Relevant Life Plans, they get access to PruProtect’s healthy living rewards programme with discounts on things like health screening, gym memberships, and an upfront discount for the employer.
They say with the direct costs of employee absence estimated at £14bn per year, businesses should be looking to enhance their employees health, rather than just trying to protect against something going wrong. Better employee health can lead to better business performance through lower absence, higher productivity and better employee engagement.
Zurich say that anyone taking out any kind of life cover will be motivated by their desire to look after the people they care about and ensure they are financially provided for if the worst happens. This is just as true for business protection plans as it is for personal plans. While discussions with business clients on relevant life cover may highlight its tax-efficiency, the plans can also help employers to take care of employees and their families by going ‘the extra mile’. The product is also likely to promote stronger feelings of loyalty among employees, who appreciate and value the additional peace of mind that life cover brings.
However, with any financial protection product there is typically a period when the emotional investment in the cover exists while the cover itself does not. In the case of relevant life cover (RLC), the employer has made the application and advised the employee they have done so. But between application and underwriting acceptance, the employee is not ‘on risk’ – so they continue to be at risk. Yes, the risk of the worst happening between application and acceptance is small – but it does exist.
To help you manage this risk, Zurich have added a free cover period to their RLC if your clients apply for a Level Protection Plan. This means your client is protected from the latest of the date they acknowledge a fully/correctly completed application, and have a completed DDM/cheque for the first payment.
Paradigm firms have found that Zurich’s relevant life covers gives them and their client, and their clients’ employees, peace of mind right away. RLC cases often involve senior employees and therefore high amounts of cover – since this can mean lengthier underwriting, their free cover extends for 90 days from acknowledgement of receipt of the application.
As well as communicating regular updates, providing a host of marketing information on www.paradigmprotect.co.uk and writing these Newsletters, we are asking firms to deliver specific and bespoke training on Business Protection for Paradigm firms.
Practical Support from Paradigm for Buisiness Protection
Given the scale of the opportunity, the potential higher revenue from Business cases than personal cases and the knowledge of Paradigm firms about their Business based customers, we have established a series of round table events to take place in November and December to expand on all of these points
The sessions will be run on the following dates at the locations stated, and we’d love to see you there!
- 18th Nov – Bristol
- 19th Nov - London - Morning session now FULL – Please note this is an afternoon session starting at 1.30pm – all other sessions start at 10am
- 26th Nov - Cobham
- 27th Nov - Southampton
- 2nd Dec - Norwich
Registration will start at 10am, and the event will begin at 10.30am, with a short introduction. We will then have 4 round table sessions for 30 minutes each where you will be able to engage with the Providers. We will finish at 12:45pm and a buffet lunch will be provided.
Places are limited so please do register early to avoid disappointment. Click here to register.
Please feel free to forward details to any colleagues that you believe may be interested in attending too.
Paradigm Protect Update
Paradigm Protect aims to provide you with a “one stop shop” for all things Protection. Since our launch, we have had over 140 new firms sign up, and all of them are now benefitting from the increased commission terms associated with Paradigm – and in many cases these have been significant. We also wanted to offer practical support to all Paradigm firms who currently sell Protection, or who may want to in the future.
If you haven’t had chance to take a look yet, please visit www.paradigmprotect.co.uk. If you would like more information on the market leading commission rates please email firstname.lastname@example.org – even if it is just to check you are enjoying the best terms!
If there is anything you would like us at Paradigm Protect to do to help you with any Protection opportunities, or if you just want to feed back on the site content, email us on: email@example.com.
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