Comparing Protection

comparing protection | savings & investment | pensions | mortgage products | intro

Providers tend to be:

Insurance companies, both proprietary and mutual Friendly societies Lloyds underwriting syndicates, in particular for very short periods not usually available from the above. Private Medical Insurance is offered by insurance companies, and also by certain Provident Associations e.g. BUPA, AXA PPP and Western Provident Association (WPA).

What should be compared between providers?

Surrender Values:

• Only products with an investment element acquire a surrender value.

• This means that policies such as term assurance, PHI (Permanent Health Insurance - non-unit linked) and personal accident do not acquire surrender values.

• Those policies that do have an investment element will only acquire a surrender value once premiums paid exceed the setting up expenses.

• Even when expenses have been covered, any surrender value will be low initially because of:

  Ongoing policy expenses The need for the investment element to grow Ongoing expenses such as the cost of the insurance. This would be particularly noticeable under a unit linked whole of life policy, where the life cover/investment balance might be changed. The higher the life cover, the lower the investment element, and the slower the surrender value builds up.

• The essential point to bear in mind is that early surrender could mean little or no return of premiums. The longer the investment element has to grow, the greater the figure is likely to be.

• Any comparison, therefore, must take into account general management expenses, policy expenses and investment performance of providers.

Premium Levels:

• Generally speaking, level term assurance premiums are easier to compare because it is a comparatively simple contract offering a fixed death benefit for a fixed premium.

• Comparing different types of term assurance is usually quite straight forward. Using level term assurance as a basis for comparison, for the same person, with the same sum assured:

  Decreasing term will be cheaper Convertible term will be more expensive Renewable term will be more expensive for the same reason as convertible term-there is an increased risk owing to the non-medical, no underwriting element relating to the built in option. Whatever type is chosen, the longer the term the more expensive the premium because of the increasing period of risk.

• Comparing 'the same' term policy amongst providers will show differences, generally relating to:

  Underwriting experience. Intrinsic expenses.

• Comparing whole life policies may not be so straight forward, as unit linked and universal policies may have different options available. Additionally, the investment element will not be comparable on the some basis as the life assurance element.

Charging and Commission Structure

• Product providers are in business to make a profit as well as to provide the various policies. Consequently, an element of profit earning will be in the make up of the charging structure.

• The level of profit will depend on:

  The cost of running the operation and of paying out benefits, and The volume of premiums input.

• This is a simplification of a complex business, but it serves to illustrate that the more efficient business has the choice of:

  Allocating higher profits, or Paying out more to claimants, or Offering lower premiums

• As different products will have different expenses and costs relating to them, it is difficult to compare relative profitability.

• Consequently, other than for, say, level term assurance, lower premiums do not necessarily mean a better policy.

• The picture is further complicated by the providers own:

  Policy wordings and general conditions e.g. definitions. Specific underwriting exclusions and limitations

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.