Are you selling your clients short?
With inflation firmly back on the economic agenda, will the life protection you provide clients today fully deliver on their expectations tomorrow?
Here’s a scenario we may not have considered a couple of years ago, but one which is now entirely feasible, especially in today’s economic climate: let’s say you sell your client £100,000 of Whole of Life cover today. In 20 years’ time, no doubt that’s the sort of buying power your client would still expect. But the reality is, it could only be worth just over half of that amount, if left to its own devices. Now, I don’t know about you, but I wouldn’t like to be the person that has to break that news.
The culprit, of course, is inflation. Despite a negligible drop last month, the Retail Price Inflation has stubbornly remained around 3% for the last three years, with the Bank of England expecting it to remain around current levels for the coming years as well. Even if we follow longer term trends, the Retail Price Inflation rate has still averaged 2.58% a year since 1989, more than enough to make a dent in your client’s cover in future. In other words, we owe it to ourselves – and more importantly, our clients to start factoring in an element of forward planning in our efforts to protect future value. That element, in a word, is indexation.
So what are the benefits of indexation? The key advantage is one of protected value: at the point of paying out, your client can have the knowledge that their buying power remains intact. While that covers the purely monetary side, the added benefit of protected value is the peace of mind it also offers.
Particularly in the case of Whole of Life cover, indexation makes good sense for clients as they get older, because as their mortality and morbidity risk increases, it becomes progressively harder for them to get top-up protection later in life. Indexation avoids this need for top-up cover, and clients also don’t need to undergo additional medical underwriting – a benefit in itself.
Getting back to the benefits of indexation, one last advantage that can sometimes be forgotten is how well it reflects on the adviser. From a reputational perspective, it can help to build trust, for having taken such a responsible long-term view of your clients’ interests. This can help build a more positive client relationship in general, bringing with it the opportunity to grow and protect stable long-term revenue streams, not to mention increased commission.
I imagine that clients will understandably highlight the difference in affordability between indexed and non-indexed plans (though I remind you that our plans offer upfront premium discounts). But on the other hand, at a time when the outlook for inflation is uncertain for some time to come, can they really afford not to have it, and you not to recommend it?
To easily compare the cost of term and Whole of Life Plans, try this interactive Premium Comparison Tool
 http://www.whatsthecost.com/cpi.aspx (2018)