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The Life Insurance Market
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Consumers should remember that buying Income Protection (IP) policies contain a potential pitfall - the definition on which the policy will pay out. Although IP is probably the more important policy a person can buy, it is crucial that you look for a policy with an Own Occupation definition. That means that the policy will pay out if you cannot do your Own Job because of ill health or disability. Suited Occupation definition is good too.
These are the 'gold' standard and makes it much easier for you to claim. Not everyone can get these definitions, but it is important to call an adviser and let us find the best possible policy for you with the best possible definitions. It will make things much easier if you ever have to claim.
Matt Morris, LifeSearch Senior Policy Adviser
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The first time I met Paul Lewis, the Radio 4 Moneybox presenter, and perhaps Britain’s most influential financial journalist, he told me that he felt the only way to improve financial services was to place the consumer first at all times. I didn’t argue. Indeed I often boast that my businesses succeed because we put the client first and this year’s profit a bit behind.
A decade later and the cost of most of the then overpriced financial services instruments has plummeted. It certainly wasn’t any reforming zeal amongst the product providers, but Paul, public opinion, regulatory pressure, the internet and intensifying competition have reduced average charges for the things everyman needs; regular premium pensions, investment and protection. To a background of regular scandals generally perpetrated by the market’s biggest firms the consumer’s advocates have dictated the pricing agenda very successfully and won the consumer a far better deal.
So this is good news! Or is it? Has it gone too far? I only ask because far fewer people contribute to private pensions, save regularly and or protect themselves and their dependents against the financial effects of death or disability than did when prices were higher. Pile it high and sell it cheap has not worked. Some would blame all the scandals, but in truth they would not stop people doing the right thing, unless people were very happy not to do anything at all!
In fact, I wonder if the new Money Advice Service, and John McFall’s dismissed call for price controls on private pensions, might not one day be seen as the high water mark of the state’s effort to help us to help themselves. Of course we have NEST to come, but in terms of new initiatives, the penny might just be dropping that while low charges and online explanations might help the wise few, they do not achieve virtuous financial behaviour in enough consumers for society to be successful long term.
I wonder if policy maker consensus is not forming that what’s needed to serve consumers best is the responsible marketing of financial responsibility. As that cannot now be state funded, then logically consumers would have to pay enough in charges to allow those who sell to them to build budgets capable of delivering changes in behaviour. Now there’s a challenge - should those who buy, pay a bit more, so that those who sell can get more people to buy and thus improve the nation’s financial health? The alternative is to do nothing or attempt to inflict compulsion on a nation deeply disrespectful of all those who might compel.
That’s only likely if government has given up all hope of a responsible, regulated free market delivering contented savers. And while, given all the historic pain the larger financial services sellers have caused consumers, that might well be where many opinion-formers are, I suspect the decision makers in Whitehall and Canary Wharf are retreating from the McFall-like certainty that cheap is the only way, and beginning to think that it might best serve the consuming public if they let those who sell make what profit the regulated market allows them and thus gain the power to market their versions of financial responsibility to the public. It means allowing the marketers a corner, while the FSA ensures that rogue rippers-off are found out fast. No matter how big they are. A pipe-dream Paul, or the way it should always have been?
Tom Baigrie, LifeSearch MD
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Guarenteed Insurability Option, often shortened to GIO, is usually added free to most life insurance policies and means the amount of cover for which you are insured can be altered without the need to reapply and prove your insurability. A major life event, such as a marriage, birth of a child or a new mortgage, is usually a good reason for activating your GIO.
A GIO is important because, if your health has worstened significantly since you originally took out a policy, it may be very expensive, or not possible, to buy a new life insurance product. A GIO on your existing policy means you can change it without the hassle of going through underwriting.
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The News of the World phone-tapping scandal may well result in statutory regulation of the press. The skulduggery and shame being paraded publicly mean that there will be little resistance to the basic demand of public opinion that “someone sort this out”.
In such situations, that someone must be the Government of the day. As a result, we can no doubt expect a press regulator to emerge. I would expect its powers to be very wide ranging, but initially relatively weak, though crucially it will be able to make and adapt rules within a broad statutory framework that its appointed leaders will be charged with interpreting.
I remember well just such a time in financial services. The 1980s were a period of huge growth in the sector as the City boomed and financial stories moved from the business section to the front pages. Played out against a backdrop of high unemployment and confrontational politics, a succession of what we would now call misselling scandals produced the same mood, albeit one with far fewer juicy bits. Regulation seemed, to me too, a sensible step, particularly the light-touch version that the statutes envisaged, based on the Bank of England’s success in regulating markets as one would membership of a club and all aimed at increasing confidence in the financial system.
But that lasted a matter of months until one particular scandal forced the Government to concede that its new regulator had failed the people. It paid out around £100m and the taxpayer funded compensation made the Treasury demand that the then regulators grow teeth and ensure this could never happen again.
That is how it must go. What starts as a cry for Government to sort foul things out, creates a new body, led initially by those who know the original problem best, but eventually by career civil servants who know how to manage offshoots of Government best. This body faces regular demands to act in order to stop various abuses and politicians refer decisions to it, so as to avoid making them themselves. It accumulates power to do so, but as the regulator does so, human nature makes something else happen that in time makes it fail the people who called for it - every time. Just like the FSA has, most obviously in the banking sector, but really just by costing billions more over the years than it has ever saved.
That thing that happens is that the regulated begin to frame their ethics by the regulator’s rules. That makes the compliance officer the arbiter of what a regulated business does, not the chairman or the shareholders. And while many compliance officers are over-cautious, there are always some that seek the loophole, as AIG so disastrously did in the sub-prime market. The difference is that regulation gives their inventions legitimacy and allows them to become established too fast to be controlled.
Common sense and clumsy policemen, who can easily be got round and who when they act, must stifle many to stop one, cannot cope effectively with this creativity and in the end more and more rules pile up and the industry shrinks, like some Communist bloc state, into a endless life-sapping battle between the police and the policed.
Welcome to your future pressmen. Despite your current crisis, do fight against it tooth and nail now, or one day the great British press will be as toothless as the FSA are making our financial services industry.
Tom Baigrie is managing director at Lifesearch
(This article appeared in a recent edition of Money Marketing)
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