Following on from my introduction to life insurance last month, here comes Part 2 of this most important, but often ignored, financial service. For those that wish a quick refresh, right click on the link below and “open in a new tab, or new window”. Then please come straight back!
OK, let’s get down into the detail. When we talk about life insurance these days, we use the term “protection”. Although that might sound like something you get from The Kray Twins, it denotes an important concept that is intended to look after YOU, the consumer.
Protection insurance simple means a financial product whose sole function is to “protect” YOU and/or YOUR LOVED ONES from the financial consequences of a life-changing, and sometimes life-ending, event. Pure Protection products – which are the only insurance products we are authorised to advise – have no investment value.
Why is this terminology so important? Because it means you know exactly what you are buying, how much it is going to cost (the premium), what it is designed to protect, how much it will protect (the amount of cover) and who, why and for how long. And when we say you will know it…we mean you will really know it – it is a requirement of the compliance process at every stage of an “advised sale”. (Stick a pin in that, I’ll come back to it).
Now it would be plain daft to try and cover all aspects of life insurance in a newsletter; people write books about this stuff and still leave things out! And it is not necessary anyway, as you will see. But here is a very quick whistle stop tour of the main life insurance products and what/who they are intended to protect.
Life Insurance (LI) – Term. Covers the life of the insured and is designed to pay out a tax-free lump to the beneficiaries to help protect them from the financial consequences of the insured persons death. “Term” simply means the insurance is implemented and paid for over an agreed term (e.g. 25 years). In this newsletter, unless I say different, you can assume the products I am describing are term insurance.
Critical Illness Cover (CIC) and Serious Illness Cover. Like life insurance, but now it pays out if the insured falls for an illness covered by the policy; thus, it protects the insured person themselves (as they are still alive) as well as their dependents. Serious Illness cover is a relatively new and innovative evolution of CIC, which pays out on a percentage basis depending on the severity of the illness; effectively it offers cover for illnesses that are rarely terminal.
Income Protection (also known as Permanent Health Insurance). Designed to protect the insurer (and therefore any dependents) from the loss of income resulting from ill health. Fundamentally different from LI & CIC in a number of important ways, such as there is no limit on the number of claims that can be made during the cover term. It also covers the insured against loss of specific occupation through illness, irrespective of their overall employability (unlike the Government!).
Family Income Benefit A form of LI and/or CIC that pays out as monthly tax-free benefit instead of a lump sum.
Life Insurance – Whole of Life Life Insurance that is not term insurance; it covers your whole life (i.e. it pays out when you die, irrespective of when that is, assuming of course all premiums are maintained – T&Cs apply.
Now that is very clearly a simplified synopsis of the what we could consider to be the key “everyday” pure protection products and the life risks they are designed to cover against…we have no more space here to elaborate, so let’s get to the most crucial bit. I mentioned compliance and the words “advised sale” ….
When you buy protection insurance from an appointed representative, the entire process is overseen and regulated by the advisor’s compliance network, all of which is regulated by the Financial Conduct Authority under a set of rules called ICOBs (Insurance Conduct of Business) Not only is the complete process regulated, each individual step is regulated. It is the advisor’s regulatory duty to agree your protection needs and advise & recommend accordingly…and the advisors will be held to account for their advice!
…now take that information in the box and add in one other, somewhat important, factor. There are no fees for insurance advice (not from us anyway). Ever!! If you take out a policy under an advised sale, we get paid a commission (which you will see). There is no cost to you of any kind.
Let’s finish this lengthy two-part newsletter on a lighter note. Given both facts above, who do you want to get your life and illness protection insurance advice from going forwards?
The bloke in the pub.
Mum and Dad.
Michael Parkinson (and his free pen).
Or, a regulated, trained, qualified Protection Advisor, who will not charge you a fee for his/her advice.
All the best,