More work needed on level premiums
Financial planners are not doing enough to move their clients into level insurance premiums, and it is costing them thousands of dollars every year, according to the principal of Capita Financial Services, Tom Graham.
Speaking to Money Management, Graham said planners were not emphasising the importance of cost savings through level insurance premiums, and it was doing a “disservice” to their clients.
“Advisers have done a pretty poor job of explaining in detail why you should be in level premiums, because their real purpose, when you grow older, is to [avoid] massive increases in premiums,” he said.
“We haven’t really pushed that, we’ve never really sat down and made a serious effort with clients that they should be doing it,” he said.
Stepped premiums also encouraged clients to eventually walk away from their insurance policies, and such a decision ultimately benefited the insurance companies, which received years of insurance premiums without the insurance risk of an older client, Graham said.
Although the initial cost of level premiums would be higher than stepped premiums, over six or seven years the cost of the stepped premiums would rise much higher, Graham said.
Graham also said that planners needed to ensure that they reviewed their client’s insurance situation on an annual basis, complete with full disclosure.
The insurance relationship needed to be maintained on the same level as an investment relationship, he added.
Planners who were simply searching for the highest premium were not applying the rule of “know your client” and identifying the most appropriate product for their needs, Graham said.
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