Advising on Whole of Life and Endowment Insurance A Checklist for RFAs


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A checklist for RFAs seeking to assist clients in making decisions about with-profits (Whole of Life and Endowment Insurance) products. Prepared by Barry Read who ran a session for one of our clients on this area which was well received.

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Advising on Whole of Life and Endowment Insurance A Checklist for RFAs

  1. 1. Advising on Whole of Life and Endowment Insurance for RFAs 1
  2. 2. What is Whole of Life Insurance? A Whole of Life (WOL) or Endowment Insurance policy is a bundled contract, which means there is no division of the premium between the insurance cover and investment portions and administration expenses of the policy. Whole of Life / Endowment Insurance policies have the following features • Provide permanent, increasing life cover for one insured person over the long term, as well as offering a regular system for modest savings and investment • Provide life insurance to till a minimum age 95 (some premiums stop at 85) • Annual bonuses increase the amount of life cover over time. Once an annual bonus is added, it’s guaranteed to remain on the policy • Actual bonus rates are subject to change and are reviewed annually • Have more than one owner e.g. a husband and wife may jointly own the policy • Accumulate a cash value after two years premiums have fallen due and been paid • Cash values are tax paid and do not need to be considered in annual tax returns • A WOL policy can be converted to an Endowment to mature earlier 2
  3. 3. What is Whole of Life Insurance? A Whole of Life insurance policy provides protection against the financial impacts of death or terminal illness, with the option to extend to cover against disablement. It can be used to plan for and cover a range of events, • Provision to pay off debt e.g. a mortgage or other commitments • Provision of an estate for dependants e.g. for children’s education • Insuring a key person or business partner • Whole of Life insurance caters for clients who want long term, increasing • Life Cover with a level premium over the term of the policy. • The policy is foremost a life insurance policy with an in-built savings component 3
  4. 4. What is Endowment Insurance? An Endowment insurance policy works in a similar way to a Whole of Life policy. The main difference is that the policy owner chooses the age the policy matures (ends). An Endowment policy is also a bundled contract - there is no division of the premium between the life cover and investment portions of the policy. Endowment insurance policies can have the following features • They are foremost a life insurance policy for one life insured. They also provide a systematic, low-risk method of building a cash value for a future date • The client chooses the maturity date (Minimum 10 years) • Providing that the policy remains in-force, a lump sum payment at maturity is assured • The policy can be jointly owned e.g. by husband and wife. The policy owner can be 4 separate to the person insured • A cash value on the policy starts to accumulate after two years • The cash value is tax paid and does not need to be considered in annual tax returns
  5. 5. Product Features of WOL & END 5 Level Premiums Rider benefits are sometimes added • Temporary Insurance Benefit • Supplementary Disablement Benefit • Accidental Death Benefit • Accidental Death & Disablement Benefit • Guaranteed Future Insurance Financial Statements - Financial Markets Authority exemption Some insurers secured from the Financial Markets Authority (FMA) an exemption from the requirement to maintain offering documents in respect of these products. The Life Prospectus have by now expired, will therefore not be renewed, and the Investment Statements will no longer be maintained. One of the conditions of the exemption is that they must provide information to policy owners about the options they have available and the effect of exercising these options.
  6. 6. What Can You Do With These Policies? Loans – up to 80% of Cash Value – Current interest rates = 7% (AMP 10/14) 6 Cashing Bonuses Surrender Policy Make Paid Up - If your client is unable to afford premiums, a client can elect to reduce their premium to zero, while still keeping their policy Convert to term insurance – No underwriting in most cases
  7. 7. Assessing a Conventional Product for Insurance Planning All RFA advisers can provide information on WOL and Endowment Policies. RFA advisers can give advice on WOL/END policies that were in-force before January 2009, but must have the knowledge and skill to be able to do so. We recommend providing information so the client can make an informed decision about the product. You need to be careful when offering opinions or recommendations about what the client should do with the products. The first question should be, ‘Does the client want the policy in scope for this engagement?’ If they say no then ignore it exists and get on with your insurance plan. If they say yes, you can add a limitation to your advice that you will provide information and options for the product, but not offer a recommendation or opinion on what action should be taken. If you leave it in scope and you just say leave it in place you are deemed to have given advice and are responsible for suitability. 7
  8. 8. Process for Providing Information and Options 1. Start from today and look forward only. 2. What is the Premium, Sum Insured (Plus Bonuses)? 3. What is the Surrender Value? 4. Are there any Riders? 5. Get 5 year projection of surrender values and sums insured. 6. Get 5 year projection of converting Then look to answer the client’s questions; 7. For each dollar paid for the next 5 years what is the return in value? 8. How much is the cost of the equivalent term life sum insured? 9. If the current surrender value was put into a term deposit (equivalent security) at 8 current rates for five years? 10. Present information to client without recommendation. 11. Give client the options of what they can do. (Keep, Surrender, Covert) 12. Document client’s rationale for their decision.
  9. 9. Keep it Simple and Let the Number do the Talking Prepared by Barry Read Independent Development Solutions Limited Phone: 021 888 054 Email: 9
  10. 10. Thank You! Visit us at The contents of this presentation are confidential. 10