Ensure your clients’ parachutes work

It\'s conference season - always a great opportunity to get feedback from financial advisers. Over the past few weeks, I\'ve spoken at a couple of events about important improvements in clarity resulting from the Association of British Insurance\'s statement of best practice for critical illness cover which came into effect at the end of last month.

Among other improvements, there are now clearer standard descriptions of CI cover to help people understand how it works, more descriptive headings for medical conditions covered to help people understand what is covered and three new standard illness definitions.

Some insurers have added extra cover to their contracts in a bid to differentiate themselves from their competitors. As a result of this, a number of advisers have been asking me which is more important, quality of cover or price?

The correct approach is to recommend the best cover your clients can afford. Of course, you should back this up by saying that there might be cheaper contracts available if clients understand they are cutting corners. Either way, if you keep a record of these conversations you will keep your compliance officer happy.

But many advisers say most of their clients just want the cheapest deals. If a client of yours is like this, you might try working through the analogy of the financial parachute. You start by saying: “You should never buy the cheapest example of some things – a parachute, for example.”

This should get your client thinking. The reason is obvious, isn’t it? You hope you’ll never need a parachute but when you need it, you really need it. When you pull the cord to open it, it’s too late to swap it for another if it doesn’t work. You need to be sure your parachute will open because your life depends on it.

Protection insurance is in the same bracket. People buy it in the hope that they will never need to use it. But they also know that if they need it, it is important that it works. Like a parachute, it only has to work once and if the worst happens, it’s too late for clients to wish they had chosen better deals.

To ensure your clients’ financial parachutes work, two things are of paramount importance. First, clients need to understand that they must answer all the questions on application forms carefully and to the best of their knowledge and belief.

Second, you should recommend the best cover each client can afford and ensure they understand what is covered and what’s not. With full disclosure, if your clients make valid claims they can be sure that their policies will pay out. And like a parachute, it’s better to have protection insurance and not need it than to need it and not have it.