Are we a nation of ditherers, dwellers and procrastinators, or is it just me? With the advent of online shopping and comparisons sites, there’s always that feeling that a better deal is out there, if you just do one more Google search.
But how often does delaying that purchase decision come back and haunt you? The number of times I’ve found a good flight deal, decided to sleep on it, and then the next day the price has jumped up... Grrr.
When it comes to protection, the consequences of delaying can be far more severe than having to pay an extra £50 for your flight.
There are two big risks for customers who want to defer making that commitment to protecting themselves and their family.
Firstly, nobody knows when, where or if they’re going to get ill or worse. We know the average age of a critical illness claimant is 481. This means there’s a stack of customers who are claiming much earlier than that to balance out those customers who make claims in their 50s and 60s. We also know that certain critical illnesses can be indiscriminate, in that you could be a healthy person and still be diagnosed with cancer, for example.
So, by delaying the purchase of protection, somebody could be really walking a tightrope. If something bad happens, they’re financially exposed. Or if their health deteriorates, they may lose the ability to acquire protection in the future, and if it’s even possible, then it could well be at a higher premium.
Which brings me onto the second big risk involved in deferring the protection decision. Cost.
It’s pretty simple, as somebody gets older, their risk of claiming on any protection contract increases. So, the cost increases. By taking out protection at an early age (with guaranteed premiums) they can lock in a cheaper rate and over the term of their policy be quids in. Here’s an example.
Let’s consider a 30-year-old man who needs £250k life and critical illness cover to protect his family. He thinks he’ll work until he’s 70 so wants a 40-year term. With Guardian, that comes to £131.652 a month.
Now let’s say he wasn’t sure about taking out the cover and waited 5 years. As a 35-year-old, assuming he was still in good health, he could take out £250k over 35 years (to age 70). The premium would be £154.59.2 That’s £1,735 more over the term of this policy, despite the shorter term of 5 years.
Finally, if he waited until he hit 40, and perhaps he’s had a little mid-life crisis and decides to commit to his protection needs, then the premium for £250k over 30 years would be £188.52*. This is £4,675 more over the 30-year term than if he had taken out the same cover at age 30.
So given all of this, how can an adviser let a client walk away without having that protection conversation and highlighting the importance of starting the cover ASAP? If an adviser agrees that they’ll revisit protection next time round, or in a few years, how would they feel if something bad happens in the interim?
Protection needs to be everybody’s first priority. Yes, before the mortgage and before the pension or investment goal. It’s the one product that you can’t buy when you really need it.