Q: Should I be considering using a whole of life plan for mortgage protection for my clients?
A: For many advisers and consumers it’s not easy to look beyond term assurance, which pays out a lump sum if the policyholder dies within a chosen time period but nothing if they survive it.
This is because whole of life cover, which pays out on death at any age, as long as the policyholder continues paying the premiums, is often still pigeon-holed as a niche product, providing an inheritance tax (IHT) planning tool for High Net Worth clients.
But that all changed with the arrival of RDR when the product was given a radical overhaul. And its appeal is now as wide ranging as its versatility.
The new, improved whole of life products have been specifically designed to fulfil a range of roles in addition to IHT planning, offering choices between guaranteed and reviewable premium rates.
The reviewable rate option is different from the old-style whole of life unit-linked format, with policyholders spared any investment decision making. But premiums will rise at the initial 10 year and subsequent five yearly review stages to reflect the client’s increased age and changes in claims assumptions and investment returns.
Reviewable rate cover may end up costing more than guaranteed rate cover but it still offers policyholders the certainty of knowing that they will always have life cover regardless of their state of health.
So, in terms of protecting a mortgage, the policyholder will have peace of mind that whenever they die, loved ones will be protected financially.
Term assurance policyholders on the other hand who experience failing health could find themselves unable to get affordable new cover once their policy has expired.
For holistic financial protection planning the term market is well established providing mortgage, family and business protection. But the changes to whole of life provide advisers with valuable new sales opportunities.
There are still many situations in which term assurance will prove preferable but anyone aiming to provide a truly holistic financial planning service during the RDR era should at least consider all viable options.