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The Five Assumptions

Yesterday an adviser mentioned to me 'the five assumptions' and he had been introduced to them by another adviser. I understand that this is a common insurance meme - perhaps an MDRT tool. However, a quick web search and I have found the following which is an excellent explanation of the five assumptions, and it's been written by a New Zealand advice business. Link

Building New Advice Processes

Building new advice processes has been the focus on the better part of nine hours today. It is cool to see advisers spend precious time and effort working on the most important thing they do: giving advice. Working on what exactly it is that will deliver the most value to clients is almost certain to deliver the most value to their businesses too.

Quotemonster Statistics

Here are the latest weekly statistics from Quotemonster:

  • The average amount of life cover quoted in the last 7 days: $422,485
  • The average amount of trauma cover quoted in the last 7 days: $135,344
  • The highest Annualised premium quoted in the last 7 days: $18,396.00
  • The average amount of time the monster takes to quote in last 7 days: 11.39 seconds

Upgrade Policy Wordings - Life Products

Continuing our series of reviewing the most important items for Life products in this post we consider the Upgrade Policy Wordings item.

A commitment to upgrade policy wordings to include future enhancements is a relatively new commitment on the part of insurers. With life cover benefits you might feel that it's application is limited, but we disagree. Two items have contributed significantly to the value of life policies over the last twenty years: Special Events Increase in Cover options, and improvements to the Inflation Linking facilities. Improvements to these are just the kinds of improvement in the policy that the upgrade in policy wordings commitment ensures are passed on to clients.

  • Seven life insurers offer the benefit receiving the full score for the item.
  • Two others also say that it is their current practice, but the commitment is not included in their documents. We do not score them, as our ratings are fundamentally based on contract promises, not practices.
  • Other insurers, predominantly 'direct' or bank-associated insurers do not offer the benefit. They also tend to have limited inflation options and do not offer special events increase in cover options.

We assign a 5% weighting to the value of this item. Looking back over the last few years there have been many improvements to cover, but we don't assign a higher rating because enhancements are nearly always available to healthier lives. They are of particular interest to lives that develop health problems after taking out their cover. Our weighting reflects factors

  • a) the near-certainty of continued enhancements in terms,
  • b) the expected duration of cover,
  • and c) the likely proportion of clients with deteriorating health.

At present we rate only on the basis of the presence or absence of the benefit. There are, in fact, some variations in the terms and we may add in sub-items to deal with these variations. They apply to whether the upgrade operates if the client has been offered cover on sub-standard terms. If you want to double-check these take a look at the policy wording database in Quality Product Research at www.quotemonster.co.nz

We are conscious of the discussion around contract commitments to upgrade medical policies to the latest wordings. Medical insurance is different - unlike life cover where mortality is well-known and slowly improving, claims rates for medical insurance can be knocked about by a number of factors which are entirely outside the insurers control. Some ability to vary terms may be necessary to the effective functioning of these contracts. So the picture is more complicated. So be sure you check the research for medical products separately.

Life Insurance Inflation Linking of Benefits

Some people like to say that life insurance is pretty simple. As we showed in our recent feature on the special events increase in cover option there are, in fact, some big differences in how important parts of the contracts work. The inflation-linking of benefits is another area that, over time, can add a lot to the value of the cover. Or not, depending on the terms of the inflation linking clauses.

So what makes a good inflation linking clause?

Actually, it is easier to explain what makes a bad one:

  • Benefit Limits: Three companies limit the inflation option - restricting it to only some benefits, or having different rules for, say, Trauma cover than life cover.
  • Claim Limits: Three companies do not allow inflation options while the client is on claim - so life cover benefits would not increase while the client is on income protection claim, for example.
  • Sum Insured Limits: Six companies apply a total sum insured limit in dollar terms or a percentage of the original cover limit. These can be hard to keep track of - as an adviser you may think a client is getting inflation adjustments, when in fact they aren't.
  • Decline Limits: Two companies cease to offer inflation increases is they are declined either two or three times in a row - one a bank, another a 'direct' insurer.
  • Age Limits: Finally, there are a range of ages at which the inflation linking ceases - in summary, here they are:

They range from as low as age 60 (predictably, the limit of two bank insurers) up to age 90 (Partners Life, offering the highest age limit). Most are scattered across the 30 years in between, but five terminate the inflation linking at or below age 65.

With clients increasing acquiring and holding cover well beyond age 60 you would do well to check Quality Product Research to see whether the life product you are recommending will include inflation adjustment - you don't have to search far, we automatically switch the rating of the item to zero when you have a client aged at or above the expiry age of the benefit. So all you have to do is prepare a quote and look on the research tab to see what the score for the inflation linking item is: zero means no benefit ;-)

For more information, refer to the Quality Product Research service on www.quotemonster.co.nz

Insurance Professional Development Course Still On

Although I might have fancied popping down to the beach today rather than working unfortunately Niko Kloeten can't give me the day off and I am actually running the course next week and will be very happy to do so - it was a different course that was cancelled. So if you are one of the folk booked in, I shall look forward to seeing you on Wednesday.

UPDATE: My thanks to Niko who has updated the Goodreturns post to show the course on increasing profitability was the one that was cancelled. This must be one of those rare occasions when life insurance has turned out to be more popular than financial planning :-)