Utmost Good Faith, The Marine Act 1906

Life Insurance (and indeed many other forms of consumer insurance) has long been covered by the principle of uberrimae fidei (utmost good faith)

In summary this required applicants, or as we call ourselves now, consumers, to disclose all necessary information relevant to the risk to be insured, even if the insurance company asked no specific question about it.

The original thinking was simple: only the insured knows all about the risk, so they should have a duty to disclose anything which would ‘influence a prudent insurer’. The underwriter could then make a reasonable judgement based on all the facts.

Once upon a gentlemanly time this sufficed, but in the modern age, with ever more litigation and loss of trust between insurer and insured this has become unworkable. It just isn't what consumers believe and expect to happen when taking out insurance. The general feeling is that the insurance company should ask the questions and we should do our best to answer truthfully. If they don't ask or we forget to mention something, we expect the insurance to be OK. You no doubt have your own view on how the application process should work.

Up until now, the most recent law governing this was in fact The Marine Insurance Act 1906. This has now been repealed. Despite its title, the Act governed every life policy and every other consumer insurance policy too (but not group insurance, fact fans). In its place, the Consumer Insurance (Disclosure and Representations) Act 2012 is now law and should come into effect next year (2013).

In future, if insurers want to know something they must ask. In return, consumers must still tell the truth, but a minor infringement will no longer invalidate the contract. The end result makes sense for all parties and should help engender greater trust in insurers.

ref: http://lawcommission.justice.gov.uk/areas/consumer-insurance.htm

Card £1.99, Flowers £10.99, Mum. Priceless.

With mothering Sunday this weekend, what is a mum actually worth?

The answer of course, is priceless.

But those actuarial types at a life insurance company have calculated a number.

And not just mum, but dad too. Legal & General (www.legalandgeneral.com) have been surveying the nation for over 30 years and the latest figures can be summarised as follows:

Value of a PARENT

Legal & General in their ‘Value of a parent survey’ state it could cost £30,000 a year to pay someone to replace a mum’s domestic work and £21,000 for a dad. The actual national calculated averages are £30,032 and £21,306.

These figures are calculated using the number of hours spent on household chores and childcare, then multiplied by the average hourly pay rate for equivalent jobs, as published by the Office of National Statistics (ONS). Finally the weekly numbers are multiplied by 52 to obtain the average value.

A mum is perceived to do, on average, 18 hours worth of work a week around the home. However, this is 53 hours less than the 71 hours of actual work they do [author’s note: My mum says she didn’t need a survey to tell her that!]

Dads are perceived to do an actual 15 hours worth of domestic work reckoned to be 35 hours less than the actual figure of 50 hours.

These figures were obtained by asking mum or dad what they thought the other one did. So the survey found a massive difference in the perception of what one parent thinks the other does compared to what they really do!

Mum’s do an average of £249 per week of childcare.

Value of a GRANDPARENT

In addition, over a quarter (27%) of households rely on grandparents for extra unpaid work.

For single parents this figure increased to 36%. Parents with younger children also relied more on grandparents with 34% obtaining regular assistance. On average, across the nation, grandparents are providing 7 hours of time a week to help out. If these parents were to pay for a childminder instead, the average cost would be £60 per week, or £3,120 a year.

Time

In terms of time to themselves, mum’s are averaging 6.5 hours a week. Quality time spent with partner averages just 3 hours per week.

From the L&G survey 49% of parents said they’d rather spend time with children than work. For parents with children between the ages of 0 & 5 this figure was almost 60%

The £30,000 figure was calculated using the hours of a non-working parent. Interestingly the value of household chores completed by a full-time working parent still came out at around £20,000!

Since the financial crisis [we can call it a recession even if the powers that be won’t!] in 2009 68% of parents said they had cut back on spending. In households earning over £70,000 this reduction was lower, but still there, at 51%

Full disclosure: Why the Green Financial interest in this?

As a financial adviser, I have seen claims pay out on insurance products to a family when a parent ‘is no longer there’, be it illness or disability that means household chores can’t be completed or in the worst case, the unfortunate and untimely death of a parent.

Most parents in the survey (57%) stated they didn’t know what state benefits would be available if their partner were to die. Over three quarters (77%) of parents think that if a partner was unable to work due to disability the government should be responsible for helping financially. That probably means a lot of disappointed, not to say hard up, people when they discover the actual level of state benefits payable.

Only half (53%) of families surveyed had any life insurance. For illness protection the number was nearer a quarter

In all cases, be it life insurance, health insurance or critical illness cover, mums had less protection than dads. And since the last survey in 2009, due to the financial crisis, the total cover in place has fallen across families. The upshot of this being that the global financial crisis may well be stretching further and causing a family financial crisis for those that suffer the illness or death of a parent and do not have any or sufficient cover.

In a similar fashion, only 34% of parents surveyed had a Will. The likelihood of having a Will does increase with age and more dads (40%) than mums (30%) had a will.

If you wish to read more on protecting your family or making a Will there is a free 28 page guide here: http://www.iangreen.com/downloads/protection.pdf
Life Insurance help is on page 4 and Wills on page 18. Do seek professional advice if you think your circumstances may require it.

And remember this Sunday, even if you don’t have the full £30,032 to give the mum in your life, a simple heartfelt thank you is also priceless.

Life Cover & Little Things

One of the UK life insurance companies, called 'Bright Grey' (http://www.brightgrey.com/ or 0845 6094 500)recently put out a nifty little booklet that they send people when their life insurance plan goes live.
I thought a few pages were worth sharing here.

The first is the point they make about the fact that it is the 'little things' we spend our money on that can soon add up. A few coffees here, a pizza or takeaway curry there. Bright Grey go on to demonstrate a little life cover could well cost a lot less than the 'little things' we spend money on without noticing.

But it is the next page that caught my eye. Surely the 'little things' are the real reason we need life insurance. I mean, of course, not the coffee and curry little things but the 'little things' we hold in our arms. Our children.

If you have children or other dependents that could be financially impacted if you were no longer around please consider life insurance. As Bright Grey point out it can be more complex to purchase (and purchase properly) than other insurances so please consider taking professional financial advice before applying.

Contact us if you'd like help working out the type and amount of cover you need or applying for life insurance.
The Green financial guide to insurance protection can be downloaded here:
http://www.iangreen.com/downloads/protection.pdf and life insurance information starts on page 4.

You can also look at the photo albums on www.facebook.com/GreenFinancial if you prefer

Keyperson & Shareholder Difference

Notes on Company Wealth Protection Insurance Plans


Key Person

Key person assurance is used to address the fact that although many businesses fully insure their material assets, often the ‘human assets’ are overlooked. ACME LTD are fully aware of this, and require the three key individuals of the company to be insured for the specified amounts. Should the unfortunate happen the proceeds could be used for many things, among them replacement costs, such as headhunting fees, salary for a replacement person, business interruption costs as projects may be delayed or existing contracts/contacts lost, or other financial implications such as falling profits, or cancelled loan agreements (if appropriate). We recommend you review the level of cover provided regularly as the business continues to grow.

All costs will be borne by ACME LTD and the plans are written for a 5-year term. This should also ensure that should you wish them to, HMRC will allow the premiums as an allowable deduction for Corporation Tax purposes, however we also recommend you carefully consider the potential taxation of key person policies. I can confirm that once the plans are in force you should send a letter to send to your local HM Inspector of Taxes to obtain clarification. I can provide a specimen letter if required.

In summary, Key person policies are paid by the company, for the benefit of the company.


Shareholder

The death or critical illness of a shareholder can often halt a business in its tracks because of the need to rearrange the shareholding. Problems may arise if the family of a deceased shareholder do not agree with the way the others are running the business or if a shareholder who is critically ill is no longer able to contribute to the business but still wishes to have a say and reap financial rewards thus holding the company back. In order to mitigate these problems (and others) and to enable swift action to be taken I recommend that the shareholders protect their interests in the business. We discussed the implications of individual shareholders dying or being diagnosed with a critical illness.

If any of you were to die or be unable to work through critical illness the situation would be difficult. It was agreed that the other partners should have the funds available to purchase the shareholding. This way the shares would stay in the same hands and the other party would have funds to deal with the situation as they wish. So for example, if Person A were to die, funds would be available for Person B and Person C to purchase the shares, keeping the shares in the control of those still running the company and providing Person A’s family with money to use as they wish.

The shareholder cover was based on the value of ACME LTD at XX date. I recommend that you review this amount of cover as the business grows to ensure that the cover reflects the market value of the business. Although ACME LTD will pay the premiums they will be treated as a ‘P11d’ style benefit and taxed accordingly. You should ensure that your accountant is aware of this and deals with the premiums appropriately. As you may have differing premiums you may wish to ‘equalise’ the costs, thus ensuring equal taxable benefit for each of you.

In summary, Shareholder protection provides benefits for individuals or their families, in exchange for the value of shares

Please note this is just intended to be a very basic guide.
There is more information in my downloadable guide http://www.iangreen.com/downloads/Bus_si.pdf
but please do seek professional advice before arranging these types of contracts

Faster Death Claim payouts

In a splendid piece of news the ABI (Association of British Insurers) has recently published guidance for all life insurance companies to help them speed up the time it takes to pay out life insurance claims.


Historically there have been complex legal issues (so they said) as to why claims couldn't be paid until the estate of the deceased was wound up.

Now, with what is seemingly good old common sense, the insurance and legal professions (ABI & The Law Commission) have banged heads and come up with a solution. Under the new process, the life insurance company will write to the main beneficiary under a life insurance policy and ask them to complete a declaration, that states if they receive money and it turns out they were not the rightful recipient (or the claim should not have been paid) they agree to pay back the money.

Whilst this will not eradicate arguments over the minority of cases whether a claim was ultimately payable or not it should alleviate the hardship that arises for many families when a genuine claim is delayed in payment for estate winding up reasons.

There are well over 30,000 death claims a year normally paid in the UK and the ABI think this new guidance should reduce the average payout time from 4 months to 4 weeks.


Note: There will be exceptions, where the circumstances of the death are suspicious (usually but not always with the police involved) or in some complicated estates.

Life Insurance Advert from Aviva

Regular Readers will remember my blog of 4th January regarding payment of a Life Insurance claim and one of my best friends.

I noticed on 17th january Aviva started running this advert

http://www.youtube.com/watch?v=TkyoCHCZlKw

Aviva have also announced their intention to make 2011 the year of family protection.

Mindful of my 4th January posting and the fact that I have a 10 week old baby, Life Insurance is at the forefront of my mind for two wildly differing reasons. One joyful, one tragic.

Aviva are currently offering £10,000 free insurance to any parent with a baby under 6 months old. Of course £10,000 per parent isn't enough and of course Aviva hope to sell more cover on the back of it but that's no bad thing and the 310,000 each is free. Why not check it out if you are a new parent?

Addressing Life Cover and the death of a loved one is a difficult and brave thing for Aviva to do on prime time TV and I commend them for it.
It is not often I say this about a life insurance company but "Well Done Aviva"

Dear Diary, Wednesday

I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!






Wednesday 13th

A brisk bicycle ride in the darkness takes me to the gym for a personal training session before work. What might seem like a complete luxury is now something I can’t recommend enough for anyone wanting to get or keep fit or lose a little weight. I plodded along at the gym (or across fields, along roads etc) for many an hour on my own in an attempt to shape up but can honestly say the results from working out with a personal trainer once or twice a week far outstrip the cost. I packed in my central London gym membership and spend the same money on personal training locally. And the results speak for themselves (I’m told - judge for yourself with the before & after shots here!). Many clients have commented on the all new trim Ian. If you are in Wandsworth or nearby do try out www.fredfitnesswithstyle.co.uk

Once back in the office I prepared for the day’s meetings.
First up, with the founder of the firm that will be answering the phones whilst my wife is on maternity leave from Green Financial.
They have fulfilled this role before on an occasional basis but from next week until the new year will be full time.
All goes well and I look forward to Pauline and Deborah picking up the calls and passing on the messages from next week.

Then a brand new client meeting with a couple that need the basics looking after so that they can concentrate on their lives rather than using their spare time to manage their finances. This is a very normal situation for me. Much of my work is with clients who could quite easily do much of what I do for them but choose to pay a professional to do it thus leaving their own time for themselves. As I so often find myself saying it is a question of capacity, not capability.
Life insurance is a priority (to replace policies lost when leaving employment), then a tidy of investments, along with a pension review possibly with a consolidation exercise if appropriate. All topped off with a plan for going forwards.

Leave work at half past two to collect my son from school. I find a further four of his school mates in tow and we all head off to the local sports ground to play football. Collecting time arrives at 5pm and slowly passes into the past as the other dads join in for a ‘dads v lads’ game. It fizzles out as the drizzle starts to rain about an hour later with the sounds of ten year old boys demanding to stay and the ring of mobile phones with mums demanding to know why dads and lads aren’t home yet and the threats of dogs being fed the dinner. It is hard to determine if the only other sound that can be heard is the creaking of the five-a-side court door shuttingor the creaking of my knees complaining about 3 hours of football just two days after the hour on the squash court. This never used to happen when I was 19…

Dear Diary, Monday

I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!

Monday 11th October
Having made my son what I thought was a breakfast fit for a hard day at school, a delicious bowl of porridge with chopped bananas, I was greeted with the response that ‘he’d rather have coco pops’. Now I know how Jamie Oliver feels!

A busy retirement
The working week then began with a meeting in the Putney office with a client who recently retired from a career in banking. As with many retired clients he seems to be busier now than when he was working!
The meeting was around the ongoing management of an investment portfolio and the portfolio construction for the pension retirement income. As is usual in situations such as this we also strayed into estate planning matters. I now have a number of questions to answer and finer details to clarify before we proceed further.

Family Matters
Then a dash out of the office to the train station (anyone who is also on www.foursquare.com could track me at this point!) and to ‘Sunny Brighton’.
The pleasure of meeting a prospective new client was tinged with sadness at the circumstances. Too often tragedy strikes when we least expect it and this gentleman was dealing with a recent bereavement of a too young wife and mother to a too young family.
Despite the circumstances the time together was positive and I feel well able to help (in purely financial matters only) the family move on from what has happened and position themselves for their future.

Life is a jigsaw
Then straight back to Putney for a meeting in the office with a client that I have only fairly recently started working with. It has taken the best part of six months to unravel their previous financial position thanks to the existing providers giving almost no information on small matters like performance or costs! We have started to work out a plan to determine if they have enough money to last a lifetime. A huge part of my work is helping people to discover “How much is enough?”. With this client the pieces of the jigsaw are almost all in place but to continue the analogy there seems to be a corner piece missing. I have left them with a few questions and if the answers are positive then we’ll complete the jigsaw and admire the view – but if the answers are not as hoped we may well be scrabbling around on the floor or simply hoping to find the missing piece down the back of the sofa…

Injury Time
Monday finishes with a particularly pleasing event for me. My first game of squash for over six months, thanks to a knee injury in the spring and then tearing an ankle ligament in the summer after falling – and in case you wonder the fall was non-sports related - and also non alcohol related before you ask!
To hammer home the time that had passed my regular squash partner had no idea I had set up Green Financial as a stand alone entity and last time we played my wife and I had just had the 12 week scan for the new baby, now due any week!
The score on the night: Well, that’s not important. It’s the taking part that counts…

Planes, (Indian) Trains and Automobiles

Planes, (Indian) Trains and Automobiles




Whilst visiting Mumbai last week I took the time to look at advertising in general and financial services in particular to compare what I saw with what we are told of the ‘Indian investment story’ in the UK press.

Around Mumbai there were many street adverts for ‘luxury’ items such as perfume, chocolate, smart (if not designer) clothes and savings plans.
There were also the global city standards, such as McDonalds and there was a massive amount of mobile phone advertising. On individual poster sites and billboards as could be expected but also crammed onto every spare inch of bus stop, lampost and street vendor stalls the latest handsets and tariffs competed for attention and sales.

The financial services adverts mostly fell into one of three basics.

The first was a version of what we call unit trusts or OEICS and the Americans call mutual funds. Often referred to in India as unit plans these were focused on inward investment or infrastructure. Many funds shouted about their capacity to reinvigorate and/or build trains, bridges, roads and cities.
There is an advert above showing the T.I.G.E.R. fund from Blackrock (a familiar UK fund house, currently famed for a gold related fund). In the UK in the late 90s TIGER in investment terms was the Asian Tiger economies. In India 2010 it is The Infrastructure, Growth and Economic Reform fund. Described as “An open ended diversified equity Scheme, seeking to generate capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of corporates, which could benefit from structural changes brought about by continuing liberalization in economic policies by the Government and/or from continuing investments in infrastructure, both by the public and private sector.” It is typical of this type of available investment opportunity and often the wording in the advertising was in terms of ‘building YOUR India’.

On that note, the second type of financial services advert was for shares. Remember the ‘demutualisation’ and ‘privatisation’ frenzy of the 80s in the UK when building societies and insurance companies (Halifax, Norwich Union etc) became PLCs and national industry (British Airways, British Gas) became privatised? “If you see Sid, tell him”
It was similar to this with shares in companies that will build infrastructure being offered. There were also a number of sites with ‘Thank You’ adverts, congratulating the Indian Public for buying up all available stock in a certain company that would now build a bridge or dam.
Private equity ownership, either directly or through funds is definitely an aspirational ideal and with returns at a decent level as the economy grows (unlike the recent UK recessionary numbers we are seeing related to interest rates and equities)

The third and final main type of financial advert was educational and promoted saving, either through unit plans (see above), an ‘all in one plan’ the UK saver would recognise as an endowment. There were also pensions for old age. Even allowing for translation UK readers may well be charmed by the following given our more cynical minds with regard to financial services products and advertising:

For Savings: “…special plans are not plans but opportunities that knock on your door once in a lifetime. These plans are a perfect blend of insurance, investment and a lifetime of happiness”
Given the discredited nature of endowments in the UK I wonder what the FSA (Financial Services Authority) would make of a UK insurer advertising an endowment in that fashion here!

For a Pension: “Pension Plans are individual plans that gaze into your future and forsee financial stability during your old age. These policies are most suited for senior citizens and those planning a secure future so that you never give up on the best things in life.”
Again, interesting to note the focus on the individual taking their own responsibility as compared to a cultural feel in the UK of a traditional entitlement or right to state benefits. It was also fascinating to see that marketing executives in India are no more creative than their UK & US counterparts in that nearly all pension adverts show an unnaturally young looking senior couple laughing and pointing into the distance :-)

More seriously and pleasingly there were a number of adverts extolling the benefit and value in saving regularly and starting early. It seems this financial wisdom is truly global and timeless. This was super to see as one of the reasons I was invited to India and one of the subjects we discussed at the ‘best practices’ meeting I attended was how MDRT could promote the idea of its members extolling the virtues of ‘financial literacy’ in their own communities.

So I enjoyed my overview of a small slice of Indian Financial Services Advertising and it was a pleasure to see areas such as Life Insurance, which is often neglected here being promoted and purchased en mass (and remember as a nation the UK is generally woefully underinsured, a fact which I sadly see all too often when advising families that have lost a loved one).

But it will be interesting to see what happens in the future. Another of the reasons I was invited was because the UK has endured massive amounts of regulation in financial planning. Much of it needed, some of it overbearing. Developing (in the financial services sense of the word) nations want to learn from our mistakes and successes and MDRT and its global network of members wish to help.

And what about when things don’t work out like the adverts?
So far the Indian Financial Services story has been one of success, with the economy growing, more and more people saving and becoming wealthier and markets rising. I hope the Indian Financial Services profession will deal just as well with the falls in markets, the consolidation of companies and the introduction of regulation when it all surely comes as it has with the current growth and expansion.