Life insurance for older people is as important an area as life insurance for younger people taking on a mortgage, or seeking to protect a young family financially in the event of early death. It is important for different reasons.
How it used to work
It is many years since I worked in the protection markets. I had really no more than glanced at them since the early 1990s (so my knowledge was, and is, well out of date, so forgive me if I am getting anything wrong here).
Back then, life insurance for seniors was provided as standard by either with-profits or unit-linked whole life policies. These paid a fixed, or escalating, sum assured whenever you died, and would have some kind of surrender value if you had to cash in early.
With-profits policies attached bonuses to the policy every year, increasing the investment value of the contract and effectively helping hedge inflation. Unit-linked policies bought investment units, whose value would hopefully grow over time for the same effect. Commission was paid to the introducing adviser, and there was a wide range of providers competing in the market.
Fast forward to the present. Thinking about the future, I recently wanted to put arrangements in place that would ensure my wife and children had money in hand quickly after I died. This is important to ensure there is money to live on and pay for the funeral, for example, rather than having to wait weeks or months for probate.
A similar arrangement was envisaged for her, and I thought one of the policies above would be ideal. I asked my financial adviser to investigate and recommend a way forward. To my utter astonishment, his response was that these types of products were no longer marketed, and could not be obtained.
I asked an expert colleague in these markets and he also said that such an arrangement would be very hard to find. So, I started an internet search.
Stuck in the past
Whole life insurance is available, but it is of a very old-fashioned kind that was dying out in the late 1980s called ‘non-profit whole life insurance’, containing no investment element at all, providing a fixed sum insured, perhaps escalating with inflation, for a fixed, guaranteed, premium for life.
It comes in two forms: ‘guaranteed acceptance’ with no medical underwriting, or ‘medically underwritten’, where your health today and prospects for the future are formally examined, with the possibility of having to attend a medical test.
Both are quite costly for the sums assured, particularly the former, but ironically, it is a boom market aiming usually to cover funeral expenses. What I wanted could, indeed, no longer be found and it was clear that problems had emerged in the old unit-linked whole life market, with rising premiums and declining cover.
Death by regulation
Why had an entire product set become extinct? The retail distribution review banned the payment of money to advisers predicated on a product sale in any investment business.
The products I wanted were investment-based, so commission could no longer be paid on them. It could still be paid on pure ‘risk’ contracts, such as non-profit whole life, so the former market died and moved on to this area.
Regulatory action, or advisers’ reaction to it, has effectively killed a product suite that, although far from perfect, was useful to the general public, who now have less choice and more expensive options.
Can somebody tell me how this is good for consumers?
Malcolm Small is executive chairman of the Retirement Income Alliance.