Bridging the beneficiary gap

The UK is regarded by many to be the birthplace of modern insurance, and the earliest life insurance policy is dated 1583 and covers the life of William Gibbons.¹

That’s well over 400 years of history, but I want to pose a question in this article about the progress we’ve made and whether we still have work to do as an industry to deliver good outcomes consistently for customers who take out life cover policies.

According to Swiss Re’s Term and Health Watch 2024, 1,433,089 term policies were bought during 2023.²

Another Swiss Re’s report “Life claims: balance of risk” also mentions that in 2023, the number of all term policies (including joint life) written into trust was 18.2%.³

And for some context, 2023 was the best year for trust uptake in the past 5 years. In 2019, trust uptake was only 9.8%.³

In this post-consumer duty environment, are those numbers good enough?  Are they acceptable?  A basic calculation would show that well over 1.1 million of these policies taken out in 2023 weren’t written into trust.

Think about any type of insurance policy, the claim is usually made by the policyholder. That could be car insurance, home insurance, mobile phone insurance and pet insurance, but that isn’t the case for claims that are made on life cover when the policyholder dies.

With life cover, policyholders need a mechanism to allow someone else to make the claim and then make the payment to the right people.

Policyholders don’t want lengthy delays. And they don’t want the money to end up going to the wrong people.

Over the past few hundred years, writing a life policy into a trust is the mechanism we have available to help achieve the objective of the customer. And it works really well – when it’s used.

But why do we have such a low uptake rate?

I’m certain that some advisers reading this article will be able to relate a completely different experience at their firm, but when we look at the numbers globally, there’s still work to be done.

I’ve titled this article bridging the beneficiary gap because the most basic objective with life cover is to pay the claim to the right person(s) quickly.  Those people are the beneficiaries and they’re chosen by the person covered.

Making life better

At Guardian, we came to market in 2018 with a promise to make life better.

Our proposition was packed with unique features and benefits which add value to policyholders.

But our life cover proposition included a first.  It’s a part of the application process called Payout Planner, which is a simple process that allows the applicant to choose beneficiaries and allocate a percentage of life cover to each of them.

In the event of a claim, we pay directly to those chosen beneficiaries.

It’s that simple. No Trustees. No witnesses. No complicated forms.

And because of its simplicity, Guardian have a completely different beneficiary uptake experience.

Trust uptake across all of our distribution partners is still modest, but the Payout Planner uptake averages around 70%, up to 100% for some partners.⁴

Payout Planner delivers a basic good customer outcome for every customer who chooses to use it, and we firmly attribute its high uptake rate to its simplicity.

Now there are going to be various situations where a trust is a more appropriate solution for some clients’ circumstances.  And for that, we have a Discretionary Split Trust Deed available for those who need it.

And customers who have nominated beneficiaries using Payout Planner can always convert to a trust at any time.

They can also change their Payout Planner beneficiaries and the percentages of benefit anytime.

Paying claims and probate delays

When it comes to paying claims, one of the biggest headaches for customers making a claim at a stressful and often upsetting time are the delays caused by the need to wait for probate to be granted.

The Swiss Re report mentioned above states that delays due to probate are now at an all time high. The report says “the average time from submission of grant application to issue for all grants exceeded three months in 2023, being 13.9 weeks.”³

The report goes on to say “If the rest of the estate settlement process is broadly the same as previously, that would mean an average nine months wait for beneficiaries”.

I ask you this simple question – is that a good outcome for customers?

At Guardian, we’re seeing positive experiences for policyholders who have chosen Payout Planner by way of paying claims quickly and directly to those chosen beneficiaries.

I’ll leave you with another question.

If you spoke to people on the high street and asked whether they’d accept the claim of their life cover taking months to be paid, and the money might go to the wrong people… what would they say?

If you’re an adviser, and you can prevent that situation for your clients simply and efficiently during the application process, is this something you consider when you recommend life cover?

For more details about our Payout Planner, please visit here.

Source

1. Swiss Re, A history of UK Insurance, 2017.
2. Swiss Re, Term and Health Watch 2024, 21 May 2024.
3. Swiss Re, Life claims: balance of risk, November 2024.
4. Guardian, Payout Planner usage between 1 January and 31 December 2024.