Protection Needs Change as We All Live Longer

In Industry News, Protection by PCH Staff

The whole of life (WOL) insurance market, according to Cigna Insurance Services, is estimated to be worth around £108m a year, with the total market value more or less split equally between the two historic types of WOL policy: over-50s guaranteed acceptance plans and fully underwritten products.

But even though they share a marketplace, these products are vastly different; so much so in fact that the Financial Conduct Authority (FCA) doesn’t even treat them as the same class of product.

On one hand, guaranteed acceptance policies, as the name implies, are easy to purchase and general acceptance is all but guaranteed. They have very little in the way of underwriting and there are usually no penalties for ill health.

However, in comparison to fully underwritten policies, guaranteed acceptance plans generally offer poorer value; especially for individuals who are non-smokers, with good medical histories, as no discount is afforded despite this.

Fully underwritten WOL policies, on the other hand, are often a lot more complicated to buy and because of the particular attention paid to an individual’s health, the application process is inevitably lengthier.

The contrast between these two types of policies – which sees one offering low premiums and low payouts and the other higher payouts in return for higher premiums – has left a noticeable gap in the market for a generation of people who are over 50 and still in good health, but maybe cannot afford fully underwritten plans.

More than 50% of Over-50s Have No Life Insurance

Indeed, research conducted by Mintel found that almost a quarter (23%) of 55 to 64-year-olds have between zero and £1,000 in their savings accounts. More worryingly, over half of all over-50s have no form of life insurance in place.

Nevertheless, research by YouGov for Cigna shows that leaving their finances neat and tidy after their death is the main purchase trigger for 60% of consumers looking at WOL policies. It’s therefore not surprising that the market is expected to grow strongly over the next few years.

The bottom line is that we are all living longer, which makes the case for insurance (life and other protection products) stronger than ever. This has been known for many years, but it is only now that insurers and intermediaries are waking up to that fact and, as such, are now playing catch up.

On the issue of whether a traditional fully underwritten WOL plan or a guaranteed acceptance (over-50s) plan is right for a client, the industry seems obsessed with leading with products rather than addressing a client’s specific needs.

Then there is the view that fully unwritten WOL is the preserve of the wealthy and is unaffordable by the mass population. On the contrary, it is the mass population that is buying guaranteed acceptance plans, perhaps not realising that they can obtain much better value from a fully underwritten WOL plan. No one product fits all and there will always be room for both.

Accessibility, clear information and support/advice, along with product innovation, will go a long way to making this growing market a success for all.

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