Wedded bliss with two single-life policies

They were young and about to get married. It was time to talk about death, pensions and life insurance. By Michael Royde

I had a telephone call from a couple who were about to get married. The introduction came through the Burns Anderson network of which I am a member. The couple wanted - on an execution-only basis - a joint-life first-death policy (which pays out if either of the people insured dies) to protect their existing mortgage, and they also required pensions.

Both were around 25 years old. The girlfriend was a pharmacist and the boyfriend a marketing manager. It turned out that they were not in company pension schemes - the pharmacist was self-employed and the boyfriend's employer had no pension scheme.

I suggested that it might well be possible to have two single-life policies for approximately the same cost as a joint- life first-death policy. This has three advantages. If both of them were to die, perhaps through an accident, there would be twice as much cover for no more expense and there would be no need to cancel the single-life policies if they divorced, although there might be no insurable interest on a first-death policy.

Both these single-life policies could also be written as pension policies, ie a section 637 contract. This contract is the same as a normal term insurance policy except the premiums are tax-deductible. They would also obtain tax relief at their maximum rates. The maximum contribution allowable under the Inland Revenue rules for pension term is 5 per cent of net relevant earnings or earned income.

With regard to the pension contract, where the major concern seemed to be that of cost, I asked them whether they had heard of the investment trust pension contracts and suggested that these might be a better buy than many of the insurance contracts.

This example seems to me to show the dangers of execution-only sales methods operated by Virgin, Marks and Spencer and some of the proposed tele-sales operations. With execution-only sales, because no advice is given, there may well be alternatives available which will not be suggested to the clients and clients' own requests may well not be suitable for their true needs.

The couple will pay commission but they will be paying less for their life insurance. Both will have suitable contracts and can run their own pensions without any commission.

In order to provide term and pension term quotations for clients I use the Common Trading Platform, which provides me with detailed quotations from the vast majority of insurance companies.

Michael Royde is a London-based independent financial adviser.

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