This time we are putting Jennifer Gilchrist, senior product development manager at Scottish Provident, on the spot with the following question:
Q: I’ve had a mortgage client who is looking to update their protection plan and I want to know why I would use a GIO (guaranteed insurability option) rather than re-broking the protection plan?
A: Setting up a GIO is a relatively easy and straight forward way of increasing a client’s plan without having to go through all the medical questions associated with taking out a new protection plan.
Many contracts for life and critical illness have terms between 20 to 30 years, so why consider cancelling a plan 2 or 3 years into its term, when these days most of them have flexibility built in?
As long as the client is eligible for this option and they aren’t ill or could claim on their plan at the time they want to increase, then most contracts will allow an increase to the sum assured, if specific events happen.
Most lifestyle changes are covered. For example, having a baby or moving home. Increases can be in the region of 50% of the original sum assured up to a maximum of £150,000. So, there is fairly wide scope to be able to accommodate an increase to the sum assured on a plan.
Even if the increase in cover the client needs is higher than allowed when using the option, it still makes sense to use the GIO and top this up with a normal plan increase, subject to underwriting.
Filling out a short application form and providing some form of evidence of the ‘event’ is all there is to it.
For GIOs check the terms and conditions so that you know what cover your client will get. Some GIOs provide the same terms and conditions as the original plan – this could be valuable in topping up older definitions that are no longer available in the market.
On the other hand if the GIO attracts new definitions, you may find getting up to date definitions is great for getting your client some severity based cover which they may not have had access to on their original plan.
In addition, commission will be allowed on GIOs and top-ups, on most plans, so advisers don’t need to worry about getting paid when giving advice.
