In a crowded and often complex protection market, advisers are dealing with an overwhelming number of product features and options. Jack Southcott, Head of Proposition (Protection) at The Exeter, highlights three standout features – beneficiary nomination, joint life separation, and fixed benefit income protection – that can offer genuine value to clients while helping advisers cut through the noise and deliver better outcomes.
The protection insurance market is a complex place. Despite best intentions to find simple product and service solutions, insurers need to meet competing demands when developing propositions. Most importantly, of course, is designing something that will provide value to customers. But there are other considerations too. Is it a sought-after feature for advisers? How will it appear on aggregator portals? Will it be positively rated on comparison services? Is it innovative enough?
The inevitable result is that feature lists expand, along with the policy documentation to describe them, with insurers finding new and different ways of explaining the same features. Meanwhile, advisers are expected to understand the workings of each product available in the market, of which there are currently 41 income protection and 72 life insurance in the advised space alone, according to Defaqto.1
While I’m not professing to have an answer to the whole issue above, not all features are created equally. There are some, I would argue, that are truly worthy of advisers’ attention, and I’ve picked out three of them below.
Beneficiary nomination
Would it surprise you to know that 77% of new single-life term policies weren’t written in trust in 2023?2
It’s an easy fact to overlook, but without specifying the beneficiaries of the payout, there’s a good chance it will go to someone other than who the policyholder intended. Consider, for example, that 40% of couples living together under the age of 45 are unmarried2. Intestacy rules give no rights to cohabitees, meaning they won’t receive the benefits from a life insurance payout unless a cast-iron will is in place.
What’s more, if a grant of probate is required to settle who is entitled to receive the benefit, beneficiaries could be waiting an average of nine months before a payment is made2.
Beneficiary nomination is a feature that has been developed over the past ten years as a straightforward way of ensuring the proceeds of a life insurance claim go directly, and quickly, to the intended recipient. It bypasses probate and does not normally form part of the estate of the life covered for inheritance tax (IHT) purposes.
The policyholder retains control of the policy and beneficiaries can be changed simply with minimal admin. For customers with more complicated payout requirements or those with young children and no guardianship arrangement in place, a trust may be more suitable.
With more providers including beneficiary nomination in their application journeys, signs are positive that more single-life policies will be set up to ensure fast and effective claim payments in the future.
Joint life separation
The industry debate around joint life policies has heated up over the past 12 months, and for good reason. While they are a popular choice for couples, they can create issues if circumstances change.
Typically, splitting a joint life policy requires both policyholders to agree. If one party refuses, the other has little control over their cover, leaving them vulnerable to the possibility of financial abuse and controlling or coercive behaviour.
So how do we respond? Insurers should provide advisers with flexible solutions – ones that can change to meet a range of client needs.
At The Exeter, we offer a joint life cover policy alongside a dual life option where partners can apply together but keep their policies separate. To protect people who may find themselves in a hostile relationship breakdown, a joint life separation option only requires consent from one policyholder and ensures they can secure a new single life policy without their previous partner’s signature or the need to be re-underwritten.
If customers opt for this route, it also provides an opportune time for advisers to remind customers of the importance of nominating beneficiaries.
Fixed benefit income protection
Income protection is designed to offer a financial safety net if customers are unable to work due to illness or injury. But those with fluctuating earnings may find themselves receiving less money at claim than they expected.
The most common reason for this happening is where the income the customer declared on application cannot be evidenced when they come to claim. Insurers typically look at their earnings over the past 12 months, and if it’s too low to support the chosen benefit, the customer will receive a reduced amount and may not receive a refund for the over-payment of their premiums.
Over-insurance can reflect poorly on insurers and advisers and lead to poor member outcomes. It can also harm trust in our industry at a time when a concerted effort is being made to drive sustainable growth.
One of the features designed to help tackle the issue of over-insurance is a fixed benefit option. This enables financial underwriting to be done up front and ‘fixes’ the amount that will be supported at claim stage, regardless of whether a customers’ earnings dropped in the previous 12 months. This removes uncertainty, speeds up the process, and is particularly valuable for those with fluctuating earnings or on long-term cover, where income may change over time.
Cutting through complexity
Despite inevitable complexity in some protection products, the features above are designed to simplify and provide certainty at crucial times. By understanding the value of such features, advisers can strengthen their advice, ensuring policies deliver what customers expect.
