When I started work as a quotations clerk at Hill Samuel Life Assurance Ltd, aged 16, in January 1980, my equipment consisted of a phone, a calculator, preprinted quote request forms and a rack of rate books.
Those for term assurance, annuities and mortgage endowments were well thumbed.
Less used were those for conventional whole-of-life guaranteed and with-profit policies.
HSLA was a true believer in the doctrine of unit linking pioneered by Mark Weinberg, and so it was that it became, in the early 1980s, the first UK life office to offer a unit-linked whole-of-life policy, the Flexible Protection Plan.
But if ever a plan became over-sold, the FPP was it.
It was touted as a panacea, a savings plan when sold with minimal life cover, an alternative to term assurance on a minimum investment basis, and a whole-of-life cover for inheritance tax when written on a ‘sustainable’ cover level.
The problem was that it wasn't as good at any function as the products specifically designed for them.
It sold because it paid 99 per cent of the first year’s premiums in initial commission.
The supposedly whole-of-life cover, however, has turned out less sustainable than promised, made worse by volatile markets in recent years.
The pain of premiums
And that's not to mention the premiums, which tend to rise inexorably as the policyholders become older.
Shortly after I joined my last employer in 2002, I discovered he’d sold a £1mn Skandia unit-linked whole-of-life policy to a couple some years before.
In 2001 the premium had been circa £7,000, at which point they were in their late 70s.
In 2002 the renewal came in north of £14,000. They paid, but grudgingly.
The following year it was £35,000. That’s how these policies work.
The older you get, the higher the premium. The clients faced a dilemma. Should they keep on paying ever-increasing premiums, or cut their losses?
They were healthy and looked likely to live a good many years more. If they quit though, they would have wasted the premiums paid and their estate would still have to pay the IHT bill.
There was no definitive right answer, and in the past 20 years I’ve seen many similar situations.
I’ve never sold one, I’m glad to say, but advisers who have had better hope either for improved returns or that the clients concerned don’t live too long.
As far as IHT solutions go, unit-linked whole-of-life is not and never has been in my armoury and you should think twice before adding it to yours.
Neil Liversidge is principal of West Riding Personal Financial Solutions
