Episode 6 – High Net Worth

Hi everyone, we are back with Matt Rann and talking about high net worth protection insurance applications. We are talking about what makes a case considered to be high net worth and how advisers and underwriters might classify these differently. We are having a chat about joint life second death insurance, gift planning and what a retrocessionaire is.

The key takeaways:

  • High net worth clients do not always mean high net worth policies.
  • Most insurers have large case teams that typically handle policies with value over £1m. 
  • Keep an eye out for the gifting of terminal illness payouts if you have done a policy for gift or IHT planning.

Next time we have Martin Stewart joining us from the London Money group. He is going to be talking about the mortgage market, why protection insurance is more important than ever, plus his question about why do we need the FCA Consumer Duty principle, surely we’ve all been doing these things already?

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors Octo Members.

If you want to know more about how to arrange protection insurance, take a look at my 13 hour CPD Protection Insurance in Practice course here and 1 hour CPD Protection Competency Exam here.

Kathryn:

Hi everybody. I have Matt, man back with me on this season, um, six, episode six of the Practical Protection Podcast. Hi, Matt.

Matt:

Good morning. How are you?

Kathryn:

I am very good, thank you. I’ve got a, a lovely cup of tea, a little bit, uh, little bit cold here. So I’ve got a lovely cup of tea to keep me warm and I’m very, very, uh, very happy to be having a chat with you today and, and how are you today?

Matt:

Yeah, keep keeping well, thank you very much. Um, uh, uh, uh, another birthday went past last week and, um,

Kathryn:

Oh,

Matt:

Lovely. What can I say? So, uh, I’m, I’m still not an old age pensioner, I’m afraid <laugh> in terms of the state benefit anyway. Um, well, I think

Kathryn:

I tried to think of what alb when the state benefits suddenly says when I, I’ll get there. 80.

Matt:

That’s a bit of contentious. I’m sorry about that. <laugh>.

Kathryn:

No, no, I was gonna say

Matt:

Db and so, and I went down to, um, had a, had a lovely late, uh, tea down down in Manchester.

Kathryn:

Oh,

Matt:

Lovely. A very nice day. And the sun, Sean, it didn’t rain in Manchester, which is saying something I have to say, so yes. Oh, very nice. Good. Thank you very much indeed.

Kathryn:

Very, very good. Well belated happy birthday to you. Thank you. Today we’re gonna be talking about high net worth protection insurance policies and how underwriting can be different for these. This is the Practical Protection Podcast.

Kathryn:

So Matt, I know we always have a little natter before these things and, uh, just make sure that we’re, we’re both completely on track in terms of the context of some of the questions that we’re, we’re gonna be going through and what we think sort of are, are conversational will, will broadly go as, but we’re always just, uh, generally having a good na as I’m sure people can tell. And I think what’s quite interesting is, when I was thinking about the first question I was gonna present to you is that we’ve chatted beforehand and, and kind of like started to already <laugh> started to talk about this data of things, which is in it sense from an underwriter’s point of view is what’s considered to be a high net worth insurance application, say, may be different to what an advisor like myself would see. So I suppose that’s a good way to start off. So in a sense, what does it mean from an underwriter’s point of view for an insurance application to be considered to be high net worth? Um, because there are specific teams, aren’t they, that in the underwriting teams that will specifically handle cases that are considered quite large?

Matt:

Yes, yes. AB absolutely not. Everybody has a a has a large case team and I’m going to immediately go, go into underwriting mode in

Kathryn:

Terms Okay, go for it.

Matt:

So, so I’m just gonna be, I’m gonna be an underwriter for a sec, not a second and next couple of minutes, but yes. But those, those teams are, uh, um, can be accessed by the iass and by distributors. Um, and they are nearly all of the main high street, um, insurers will have a high net worth team, or I think probably more commonly caused, uh, called in, in underwriting circles anyway, a large case team. Now there, there is a, um, another, uh, phrase that is used, um, within the, the high net worth or large case space, uh, ca, uh, space. I trip my teeth, um, called jumbo risks.

Kathryn:

Oh, right.

Matt:

They, they maybe in a bit of an old fashioned term. Um, but those risks are generally ones which are, and I would have, I’m gonna be have to be a little bit general here in my comment. Yeah. But probably over around 20 million for life.

Kathryn:

Okay.

Matt:

Okay. Jumbo elephant, big, large. Yes. That’s the kinda, uh, where, where it all comes from. No surprises

Kathryn:

There. I’m seeing an elephant covered in money. That’s my visual now.

Matt:

<laugh>. Absolutely. Absolutely. Um, so again, high, high net applications, um, is in my experience, at least a term that is, is often used by, uh, IFAs in particular who have a high net worth client. Uh, um, again, how you define a high net worth client is really, I think down to the individual if a, but I would say you are looking at, um, a, a net worth, uh, and we’ll go into that a little bit later on and, uh, uh, inheritance tax, I’m gonna talk about that a little bit later on Yeah. Of around, let’s say 2 million or so. Yeah. Or war is earning, you know, in, when, in excess of say 200,000 pound per annum. Okay. That high net worth client, um, can often, um, only require small amounts of live cover or kick or ip Yeah. Which would not classically be turned a large case and may not go into a large case team.

Kathryn:

Yeah.

Matt:

Um, so I think we have to be a bit slightly careful here around how we, how we define a, a high net worth application. Cause I always think high net worth is more around the individual Yeah. Is more about the policy size.

Kathryn:

Yes. Absolutely. I, I, I completely agree in terms of policy size, I’m just thinking, um, uh, there’s somebody I’ve been speaking to recently and, um, and their net worth is, is considerably more than 2 million as you were just mentioning there. Yeah. But the insurance policy that’s needed is only about 600,000 pounds. Yeah. And I wouldn’t consider that policy as high net worth or going to the high net worth team. So I, I do think it’s important that, you know what you’re saying though in terms of this definition. It’s, it’s, it’s important to sort to like separate sometimes the person from the policy and think, right, well, well actually with the insurer we’re, we’re, we’re speaking about the policy here. Um, I mean there can obviously be specific connections though, can’t this to say, so as an example, if somebody is earning 20,000 pounds with a salary every year, and let’s just assume that they don’t have a mortgage that’s more than say 200,000 and they come and they’re wanting 3 million pounds worth of life insurance, that’s obviously from an insurable interest point of view, as an advisor, we’d be probably stepping in and going, is is the insurable interest?

Kathryn:

There is the need there. But I imagine as if somebody had gone direct to an insurer and they wanted that kind of cover and they’re in that kind of situation. What would be, and I know you can’t speak for all insurers or all underwriters, but isn’t there sort of like a bit of a stance at some point where it’s like, well generally insurers are happy to go by a certain multiple of salary as sort of like seen as like it’s maybe, I dunno, maybe 20 times salary or something as a maximum ballpark figure unless there’s that real considerable need and interest being, um, discussed.

Matt:

I think you, you, you’re absolutely right as, uh, in in ballpark figures then multiples of salary are, are linked, um, to the individual, the younger you are generally. And if we’ve got more the work, uh, length of time to go in terms of working life income generating years, um, the, the higher the multiple is salary and it’ll go down to about, uh, five, uh, when you become 55 60. Although that’s probably possibly a bit contentious with people working often well beyond 60, 65, 70 now. Yeah. I would say though that, um, and, and you know, over the years I’ve seen many, many cases on similar lines to the one you’ve just said. I would always say, look, look at the insurer’s guidelines. And I would really emphasize here, these are guidelines only.

Kathryn:

Mm-hmm.

Matt:

If there is a story to run alongside, let’s say the case that you just mentioned. Yeah. The need, yeah. I then the need and the loss on death. Cause ultimately that’s what you’re looking at. It’s the loss on death, isn’t it? Yeah. If there is a, an, uh, a need there, um, and it can be explained, then underwriters will, will, uh, think outside the box and, and potentially from the circumstances give 3 million in the, in the scenario you just mentioned. Um, so really, you know, I, I wouldn’t necessarily be bound by the multiples of salary for personal protection, uh, on life cover. If there is a story to be had, then tell it. And the majority of those underwriters who, um, being happy, a little bit careful here, but who work on the high net worth teams or the large case teams Yeah. Um, will, will, will certainly listen, listen and see what they can do. Yeah. So, so those multiples, um, are rather interesting. And also you get into all types of funny I say funny, frustrating situations where those multiples might happen to be on an, um, on a, an automated underwriting system.

Kathryn:

Yes.

Matt:

<laugh>. So, so, uh, you know, again, it is, I think it’s worth alerting, um, uh, an underwriting team to a particular client of yours maybe before you submit it just to say this is on its way. Um, or, and you are under, and even if you do submit it, the underwriting, uh, automated rule has said, right, okay, we’re gonna limit this to, let’s say 20 times. Yeah. But there’s more to it, more to this case than meets the eye and, and therefore get it, you know, get to that automated decision turnaround. It’s one of the, it’s one of the challenges you have with automated systems, to be honest with you. It takes away the flexibility that a human intervention can make. Does that help in that particular example?

Kathryn:

Yeah, it does. I was thinking in terms of the automated systems, like going back to what you said before, like where, when we’re starting to maybe think 2 million is possibly gonna start being looked at by the, the large case team is, as we call it,

Matt:

That’s maybe high net worth worth. Sorry, the, that was an example I was using on a kind of a high net worth scenario. Um, in terms of a high net worth individual, if you are looking at the policy, if I can revert back to policies, policy sums assured, then generally I, I’ll just go life only for, for the sake of the time that we have today, um, we’ll, we’ll kick in this around a million or a million and a half for life. So look, if you look at the sums assured, then that’s usually the sums assured that will go into a large case team that that figure does vary amongst different insurers. Sorry to interrupt Catherine. I just just wanted to, to be, um, a little bit clearer in terms of what an underwriter and a large case team would consider.

Kathryn:

Yeah, no, absolutely. That’s really helpful. Thank you. Um, sorry, I, I muted myself because, uh, fudge started to have a barking fit. So, um, just

Matt:

<laugh>,

Kathryn:

Nobody wants to hear that’s all cuts. How his barking. Does he,

Matt:

Cause he disagree with me then <laugh>. Yes.

Kathryn:

He’s clearly got my back. Yes. No, he’s

Matt:

<laugh>, <laugh> good. He’s just

Kathryn:

Seeing someone outside. He’s just having a moment <laugh>. But no, I think that is really helpful. Cause that’s why I was thinking, I was thinking, well, a million pounds, I would expect that, you know, in terms of the applications that we do, but getting towards that minute, assuming that we’re doing it all in one policy and with the same insurer and that we’ve not split across multiples, I would be expecting a million pounds that a lot of the time that it would be going to, um, it wouldn’t be going through necessarily straight online and, um, that we’ll be doing things like triggering, quite likely, possibly triggering things like maybe GP reports, nurses screenings, medical underwriting is, is that what we can expect? Except, and they’ll also be sort of, there’s a time as well, isn’t there where there’s financial underwriting comes into place?

Matt:

Yes, that’s right. And in terms of the, the medical side, yeah, it very much depends on the age, of course, as you, as you work very well know, um, uh, non-med limits medical limits are based very much on age, the younger you are. And on the, on the basis you’ve made no, no adverse disclosures, um, comments about your preexisting medical history. That is, um, then, uh, you know, you can get quite substantial sums assured with, with no medical. Yeah. Um, some insurers require an automatic G P R.

Kathryn:

Yes. Uh,

Matt:

At any sum assured. Um, so it, it varies, it varies amongst insurers, but you, you’re right, in general terms, the, the higher the sum assured rather dependent on age, um, the, the, the more, uh, evidence you will get, particularly the, I mean, I would say maybe outside the London domestic mortgage market, then most of the large cases that I see tend to be people over the age of 40.

Matt:

Yes. Certainly 50, 60. And then you start getting into IH to inheritance tax Of course. Yeah. Um, so, and they’ll be kicking off, um, automatic requirements at a, at a smaller summary short. So absolutely. Right. In terms of financial underwriting then, um, it kind of maybe ties in a little bit to what I was saying before about underwriting guidelines and the, the 20 times salary example that you used. Um, then those, again, when they start to kick off, they depe, uh, uh, vary within the marketplace. And also there’s the sums assured, which, um, will generate a third party verification of the financial evidence. Yeah. So what I mean by that is typically on an on, um, in terms of inheritance tax, then the larger sums assured then you, uh, a letter, um, or email, uh, from the tax advisor, yes. Independent tax advisor or accountant would, would generally be required.

Matt:

Um, business covers, things like shareholder protection, for instance. You won’t want to, you be, uh, looking at therefore basing your, some assured on the percentage shareholding that an individual may have that will therefore go down to the, the valuation of the company. Mm-hmm. <affirmative>, which are pretty notorious. I think in terms I say notorious isn’t the right word. Difficult for, uh, most advisors to try and calculate themselves. Then again, the, the, um, a a third party accountant would, would, um, need to produce independent validation. So yes, it does trigger, uh, additional evidence and, um, dare I say it goes with it, uh, seven times, particularly on the financials, uh, delays.

Kathryn:

Yeah, no, absolutely. I was gonna say in terms of like things like the shareholder protection and, and things like that, you know, which, which we do, I’ve, I’ve been involved in that quite a bit is Yeah, one of the things I always do is it’s just like, like what’s the accountant, you know, basically the accountant needs to value this because ultimately as well, I think a key thing there is that, you know, some advisors might feel confident and do stuff like, but going from my compliance head and be always the, the area of complaints and what can we do to minimize that, I always think along the lines of that’s not my expertise. You know, I’m valuing a business and ascertaining the value of each share per person and to their potential allocation. Especially if it’s like the share holding is split a different percentages per person.

Kathryn:

Um, it’s just way outside my, my day-to-day thing. And ultimately an accountant will have evaluation of the business. You know, that’s, especially when we’re talking a lot of the time, the level when we’re talking, people are really wanting shareholder protection or a sort of like, prepared to start to think about it because they’re thinking, hang on a minute, we’re actually all worth quite a bit here. We should probably ensure ourselves, um, you know, you are getting to the point where there’s, there is gonna be accountants absolutely involved. Um, and yeah, they will be able to, to give you that information quite clearly and in the format that the insurer needs because it’ll all be, um, provided in the, uh, correct way. I think I was quite interested as well. Um, I think I’ve, uh, skipped over this question. It was gonna be one of my other ones, I think I jumped ahead slightly, is the fact that, you know, we do see as advisors, and I know we’ve got someone, there’s a couple of us in our firm who we would specifically have as being there for like the high net worth, um, side of things.

Kathryn:

And I think this is sort of a bit of an interesting one because it almost, it almost flips in terms of the context that we’ve been discussing. So we’ve been saying our high net worth, you know, just cuz the individual might have a higher state, it doesn’t mean that the protection policy is gonna be high net worth. Whereas sometimes for ourselves we consider our high net worth advisors, again, it, it might not be that they’re gonna go for the biggest insurance’s policies, but it will be quite linked to the person’s net value because we know that in those situations are certain, um, barriers, you know, sorry, when we’re getting to them that we’re starting to do, like what you said, we are starting to hit i h t levels, we’re starting to go into gift planning, things like that. So we have some of our team who are specifically, um, focused on that area.

Kathryn:

And, but then again, as, as it was saying though, so the, the individual there is a high net worth but the policy might not necessarily be high net worth. But yeah, there is a certain amount of complexity but, but then there are obviously as well and know and a number of firms where they are purely high what they were class themselves as high net worth advisors. Yeah. Um, and I think that’s quite interesting because, you know, I think a lot of us in the advisor space, we, we don’t always speak to people with, you know, huge estates. I think sometimes you think is it that many people in the UK with that much value that, you know, kind of thing that we have these dedicated teams, we have these dedicated advisors. And I think what’s quite interesting as well is cuz because of the fact that we know it is gonna go to a large case team and depending upon the value, but let’s say if somebody needs 2.15 million in life insurance in, in the process generally of the application, the fact that we’re gonna be going for medical evidence, it’s not that different to say going for say 500,000 if that person happened to need medical evidence.

Kathryn:

The, the only addition really is that financial, um, questionnaire to my knowledge. And I think what would be really interesting is to get your take on what do these large case teams, what, what is it that’s so different about that client set that we need dedicated teams. That’d be really fascinating to know.

Matt:

Okay. I think there’s, there’s two angles to this. I think there is one from the individual. So the life, let’s say the life assured to keep it simple and um, potentially might be a little bit of a contentious thing to say, but people who are generally are worth millions want a, uh, a supremely slick and problem free service. Um, it is the nature of the, of, of the, uh, world that they live in, um, that they want everything pain free, they all want it yesterday. Um, they want it. Yeah. Simple, simple. And where they don’t have to spend much time on it at all. You know, a lot of large, large, large, large case lives assured they don’t even wanna go for a medical exam. Yes. For instance because, you know, they seem to see its time out and, and unfit and therefore, et cetera, et cetera.

Kathryn:

I suppose as well, quite a lot of people in that situation are quite successful business people Correct. Who are doing, um, working obviously very long hours, very intensely. And, and as you said, they are just very much, um, what I class as a red personality. I’m a red personality myself. Um, but you know, it’s just a case of I want this done. If you can’t make it easy, I’ll go elsewhere or I just won’t even have it kind of thing, even though I know I need it, even though, which is, it’s not a good way to <laugh> it’s not a good way to sound like people, but it’s the way that people are <laugh>.

Matt:

Yeah, absolutely. Some people certainly. And, and it tends to be a characteristic of this socioeconomic group in my experience. Yeah. Um, and therefore from a high net worth individual, a special slick problem free service is what is required and there’s an element of high net worth underwriters job to make sure that that happens.

Kathryn:

Yes.

Matt:

In its crude terms, the, uh, the larger the policy, the large, and I’m going to, this is very, very obvious, but in its crude terms, CS that larger the policy, the larger the risk to the insurance company.

Kathryn:

Absolutely.

Matt:

And therefore, if you’re going to, um, take on a risk of several million and I can go on to larger sums assure than that, then you want your most experienced and savvy underwriters signing off that risk.

Kathryn:

Yeah.

Matt:

And therefore your high net worth teams, or your large case teams in the market tend to to be staffed by those types of individual. Yes. Okay. So you’ve got a, you’ve got two parts to this. You’ve got the actual client service and you’ve got a, you know, you have a very experienced underwriter looking at all angles and all ways of making it happen as soon as possible.

Kathryn:

Yeah.

Matt:

And there’s many, many, many ways of making things happen as soon as possible, I can assure you. Yeah. I can’t give my trade secrets away of

Kathryn:

Course. Oh no, no, of course. Keep

Matt:

That. I’m <laugh> I’m already pull you leg. Um, but also there is the, the absolute strip bear. What does an underwriter do? And they’re risk managers at the end of the day, um, for the insurer and therefore they have to make sure that they get it right.

Kathryn:

And of course

Matt:

That’s why you tend to have high net worth teams staffed with your more experienced underwriters. And but also in my opinion, I always set up my large case teams in, uh, my previous lives with people who could think outside the box. Yes. Who would go the extra mile for a client. Um, now as I say, this is why I think that this kind of area can be a bit contentious cuz surely you should do that for every client, irrespective of the, some assured in terms of the client’s experience, I mean by that. Yeah. Um, and, and I think there is, there is something to be said for it, but we do live in a commercial reality and you know, that’s, that’s the way that the industry is currently. Um, but just that

Kathryn:

Make sense. I was gonna say

Matt:

The client side, but it was also the risk management side has to be Bob on as well.

Kathryn:

Yeah. The thing is, I think it’s one of those things, isn’t it? Where, you know, it’s from, from, from an advisor point of view and I think a lot of advisors who don’t handle, uh, cases that are that value, you know, it could be frustrating to think, well, hang on a minute, I want a slick through process for my people and I, and it’s, but ultimately I think it comes down to that whole thing as well, isn’t it? That this is the way that things are structured. You know, it does make sense that if Finn show is taking on a significant risk, that they’re gonna wanna make sure that somebody like almost in a sense, an underwriter kind of making themselves into a mini compliance person in some ways, you know, you said risk manager, they’re gonna want to make sure that that is, that case is looked at through and through that everything’s been sorted in terms of the, the medical underwriting and there’s, there’s no, or there’s incredibly minimal risk for things to have not been spotted that needed to be spotted. So I think that’s

Matt:

Fair. Could, could be spotted. Yes. AB absolutely. Yeah. We we’re not kinda, um, looking at a high net worth case, um, being a kind of like a, a super healthy individual. We’re not looking at that. We’re just making sure that it is done. The, the, the underwriting process is carried out to the, the best level that it is possible. Yeah. That’s what we’re trying to do there. And hence the experience of the underwriters tends to be not higher with the, in in the high net worth team. Um, and the, as I say, there are two elements to it. One’s one’s risk and one, one is client experience.

Kathryn:

Yeah, no, absolutely.

Matt:

Does that, does that help that particular question?

Kathryn:

It does. It does. It really, really helps. Thank you. Okay then. So in terms of the next question, cause this is something I’ve seen sometimes and it’d be, um, interesting to get your thoughts and it, because I think, you know, we might, you know, in terms of like loadings and stuff like that, in terms of high value policies, you know, to the best of my knowledge, if, you know, if somebody has a health condition, which means they’re gonna get a plus 25% on the premium, um, in terms of somebody who’s a high value policy, you know, they’re gonna still get the plus 25%. You know, unless there was something in terms of, I, I don’t, I don’t know, but it’s not gonna be such like, oh well cuz it’s this much we’re gonna go up to a hundred percent because, you know, we don’t wanna, it is so much risk cuz that’s to the best of my knowledge and, uh, if, if it was other than that I would completely, uh, understand you not talking about that side of things, Matt.

Kathryn:

But, uh, I don’t think that is the case. Um, but I do know that especially if we’re starting to look at sometimes some people who are in the international space, um, and we’re ensuring them that that can sometimes with a sub assure actually end up triggering going to per mil ratings because of someone being, um, based outside the country for, for quite a long period of time. Um, so I is that in a sense is, am I right in thinking that, so in a sense, health conditions would be considered pretty much the same as someone who was, you know, whether or not it’s 5 million or a hundred thousand being took out it pretty much considered in the same way. But there are things that potentially travel or, you know, potentially some spots and different things like that that could, you know, change things into a more of a per mill side of things, which, you know, on the types of summer shows that we’re talking about would be significant increases in terms of the premiums.

Matt:

Okay. I think, um, there are two angles to this. I must admit when I, um, uh, looked at the question, um, I thought maybe you are, but I, I was thinking more of, um, if I can put international just to one side for a second.

Kathryn:

Yeah, absolutely. In,

Matt:

In in the uk, uh, you’ll get, um, insurers you could probably argue more, the reinsurers are introducing, um, premium loadings, um, at certain sums assured

Kathryn:

Right

Matt:

Now why they do that, um, is, is an interesting one. And I think I’ll probably keep off the whys and the wheres

Kathryn:

As well. Of course. Yeah. But

Matt:

Either, either which way, um, you’ll find that some reinsurers, um, sorry, let’s say insurers first. Let’s take reinsurers out of it for

Kathryn:

A second. Yeah.

Matt:

Cause it’s the insurer who fronts all this after all. Yeah. Um, we’ll, um, we’ll start to load it sums life, life only sums assured as low as 10 million.

Kathryn:

Okay.

Matt:

But certainly it’s a little bit more common at 20 million. So for a start, I think you’re looking at pretty big sums assured before those types of loadings getting, uh, are, are involved. Um, now some insurers, um, won’t load at all, even on very big sums assured. So again, it’s find, you know, it’s, it is finding your insurer there.

Kathryn:

Yes. As always, we need to make sure that we

Matt:

Quite, quite well. When I think on this particular element, it’s, it’s, it’s, um, it’s, it’s certainly worth it. Cause it can mean one heck of a difference on in terms of the premium. You, you guys, um, sorry, I, you guys, I mean by that I will probably seen when they’ve gone to their com, their price comparison sites, they would’ve seen that some insurances will only quote to a certain amount.

Kathryn:

Yes.

Matt:

Or they won’t hold over a certain amount. And, and that’s the trigger, the clue that there’s gonna be some potentially some kind of loading involved in that. Okay. Now if I go back to this is, this is where, um, um, I suppose egos come into it to a certain sort of way. And e even underwriters have egos, believe it or not. And, um, I I do remember being part of a case, um, amongst many insurers, I would say that placed 148 million on a single lady.

Kathryn:

Oh wow.

Matt:

I h t and

Kathryn:

Oh wow. That’s, that was the 40% on the I h t side.

Matt:

Absolutely.

Kathryn:

Oh, and

Matt:

Uh, and by the way, that wasn’t a enough and, uh, there was, there was no explicit loading, additional loading to any of that cover.

Kathryn:

Right. I mean, that’s, that’s a phenomenal amount of risk for the insurer.

Matt:

<laugh> Well it’s, it’s, remember you, you, you read, I dunno if, is it Tim that you had on, uh, this, this year from how

Kathryn:

Yeah, yeah, absolutely. Could

Matt:

You talk about reinsurance and Yes, it works. Yeah. So I won’t go into it again, but of course this, this hundred 48 was spread across whole of the UK market. It was spread across all the UK in, uh, uh, reinsurers and also the retrocessionaire as well. Mm-hmm. So it was a completely, it was a very much a global risk. Is that,

Kathryn:

What did you just say, retrocessionaire?

Matt:

Yeah, absolutely. These, that’s

Kathryn:

If I trust session air,

Matt:

Ah, sorry, I’m not sure how to, this is, um, I’m sorry. I couldn’t remember how much information Tim went into, so I was

Kathryn:

No, that’s fine. I just, I feel like it’s a word that I feel like I’ve missed out on all my life. It feels like a very unusual word. It just feels strange to say it <laugh> and really want to know what it’s now <laugh>.

Matt:

Yeah. Well I gonna tell you now. Thank

Kathryn:

You

Matt:

<laugh>. Right. Ok. Um, well, effectively, uh, as you know, uh, in very simple terms, reinsurers, insurer, insurers.

Kathryn:

Yes.

Matt:

Retrocessions ensure reinsurers.

Kathryn:

Okay.

Matt:

So it’s the third level.

Kathryn:

There’s another tier,

Matt:

There’s another tier. Good way of putting it. So is that,

Kathryn:

Is that essentially stakeholders that just bundle a lot of money together and say, use this?

Matt:

No. Okay. Use these are, they are generally reinsurers. The retrocession is it generally reinsurers, but will operate in the wider marketplace, if you like.

Kathryn:

Okay.

Matt:

O other than having just a single relationship with our insurer, they will look to ha to, to, to cover jumbo risks across the industry.

Kathryn:

Okay.

Matt:

But they, they’re generally reinsurers who do that.

Kathryn:

Okay. That’s interesting. I was gonna say I’ve Googled it while, while you’ve been describing it to me, I’ve also Googled it. Cause I was like, I wonder how I spell that. I just, I Oh, right. Yeah, I was gonna say, it’s really intrigued me. I’m gonna be, I’m gonna have to try and use that word in some kind of conversation today with somebody. I, I love it. I thought what it is, I just really love that word <laugh>.

Matt:

Just, just really the best way to explain it. Forget that they are re reassured, which they are, but just, just think this is a third layer. That’s the, that’s the way I always try and explain it anyway.

Kathryn:

Is there a fourth layer?

Matt:

Not as far as I’m aware. No.

Kathryn:

Okay. Right. Okay. So, so they’re the end layer.

Matt:

Yes. They, they, they will ultimately will govern the maximum assure that can be placed on,

Kathryn:

On an,

Matt:

You know, end off really. And they’re global. And you can get in some fascinating decisions around, um, how, I don’t wanna get too much away here. I shouldn’t Yeah,

Kathryn:

No, of

Matt:

Course. How the American market will look at UK risk.

Kathryn:

Uh, that’s really interesting you mentioned the American market because, um, I was just doing some insurance for somebody recently and, um, they’re due to be going and living, um, in North America. Yeah. And it was that whole thing of saying, you know, self frank saying like, well I need to do this before you move <laugh>. You know, in a sense because, you know, there’s so many And then there was saying about trust. I was like, right, you’re gonna need, you know, you need to get legal advice in terms of the trust because you know, there’s, there is a real thing isn’t that there’s like treaties in place that say that we can’t do, um, we generally can’t do insurance advice for people who are in, um, America. Um, if we’re based in the uk I’m sure there’s some iass who do, and I I do know iass that do, but you know, it usually then does involve solicitors because of the amount of legal, um, contracts that need to go into place in terms of the diff the way the different financial systems work. Sorry, I just went on a bit of a side tangent there. No,

Matt:

No, no. Yes. It’s not a nothing to do with insurance treaties by the way. This is their licenses, but I’ll uh, I shall, I shall leave that one alone for the

Kathryn:

Minute. Yeah, no, absolutely. Uh, well we don’t want you saying anything you’re not allowed to say. I’ll just be

Matt:

<laugh>. I don’t think there’s too much there. It’s, it’s just, uh, we, we’ve just got a limited amount of time, that’s all. Cause we could whole morning about some of these things, but, um, I’m being a, a little, maybe appearing a little fickle don’t mean to be.

Kathryn:

No, no, absolutely. And so, and you know, when we’re talking about this, obviously we’ve mentioned the high net worth side of things, the fact that there’s, sometimes I’ve heard tomorrow’s large cases, the fact that a high net worth individual doesn’t mean a high net worth case, but then also vice versa of that. Yeah. But you know, I think a good thing that we need to talk about a bit is inheritance tax planning and gift into Viv Os. Um, both things I’m familiar with, but I will obviously chat to you about them so we can help people to possibly understand them a bit more. So in terms of the inheritance tax planning, that is gonna be, um, where we need to be starting to, um, kick into place some protection, some financial protection for what could be the potential tax on an estate when somebody passes away. So what kind of policies would you generally recommend for that kind of situation, Matt?

Matt:

Okay. Just, just to be a hundred percent sure here. I, I wouldn’t recommend,

Kathryn:

Oh no, sorry not. No, no. Sorry. I

Matt:

Know, I know where you’re coming from. What

Kathryn:

Would you usually say as an underwriter? What would you usually expect an advisor to come to you and say, I need this, if somebody was, uh, wanting that.

Matt:

Absolutely. Um, well, again, very much down to individual circumstance. Um, and therefore the, the detail of the tax affairs of the individual do need to be, uh, considered in detail by the, uh, the, the advisor here in terms of the products. Um, then if I’d have been sat here 10 years ago, I would’ve said the most common product for a married couple, um, or civil partnership, et cetera, um, would’ve, would’ve been a, a joint whole of guaranteed whole of life. A second death policy. Yeah. The second death, as you know, is around that, is when the actual tax liability happens Yes. Between houses. Um, and that would be your common one. Now, what has happened in the marketplace, the cost of the guarantee went absolutely skyrocketing, um, over the last 10 years. And they almost became obsolete, um, in the UK market. Uh, cause even those folk who had an awful lot of money just didn’t see them valued for money, which is a debatable one.

Matt:

If you lose a, if you use a a a guarantee, uh, sorry, a whole of life calculator. Yes. Which available on various websites to, uh, explain how the premium works against the liability, et cetera. However, yeah, the perception was there and really what is, um, what was taken over from those is a joint level term assurance second death. Mm-hmm. <affirmative>, which is, uh, noticeably cheaper. But of course a level term assurance has an expiry date. Yes. Um, and it, it doesn’t provide the whole of life cover, which is one could argue is, is really what you need on a, on an inheritance tax liability. Yeah. But nevertheless, they are popular because A, um, uh, they’re cheaper. Uh, and b because, uh, financial planning, I’m, I’m seeing it more increasingly, and you, you, you, um, please shout as well what, what you said, um, that that particularly younger couples in the thirties and forties, fifties even, um, will say, right, I’m just gonna take out 10 year term assurance, second death cause I’m not gonna sort out my estates and gift things here and gift things there and, and get my tax wizards on this. And, um, and therefore by the time I’m, I get to my seventies or eighties, I’m saying this is when maybe, maybe most people pass away. Yeah. Um, you know, my, the, the tax that I may be giving the union revenue will be, um, an awful lot less.

Kathryn:

Yeah, absolutely. I mean

Matt:

A short period. So I, I now, um, from my perspective, I see a lot of term assurance second death in the kind of 10 to 20 year category.

Kathryn:

Yeah. I mean, we do sometimes see um, things like things like that and, you know, very similar to what you say. So, so a bit of a, a tip that I would be trying to say to advisors, you know, if, if you see the need for inheritance tax planning, you wanting to do the whole of life insurance, you know, it’s not going to be cheap. You know, especially when we’re talking somebody who’s in that kind of a value. Um, and you know, you might even be, you know, there could be arguments to do at R P I links because of the fact that the value of the estate could be getting bigger and you know, even then it still might not keep on top of that. Cause I think what a lot of people probably don’t think about or factor in is just how much property values have increased over the years.

Kathryn:

Yeah. And how that could very, very quickly be putting people into an I H t um, risk. Um, so if you are trying to do an advice for somebody and you can see that they need whole of life insurance and they’re just going, look, I’m just not prepared to pay that, do them the term courts, you know, at the very least I’ve sales from a compliance point of view as well. You know, make sure you’ve quoted them for whole of life. Quote them to age 90, quote them to age 85, quote them to age 80. Obviously the very, depending upon their, their age as well as to the people that they’re talking about. You know, do that. Try and get it on a guaranteed basis as well if you can. Because I’m seeing more and more people and I have had somebody contact me recently, you know, and Maha actually goes out too then.

Kathryn:

Yeah. Yeah. And because of the fact that they’ve taken out these, uh, policies and I have quite a lot of people in a sense brought to me to have a look at these existing policies who have maybe done like a unit linked basis. So quite old ones that were set up, um, on a renewable basis. And when you’re getting to a certain age that re when the renewal comes up, um, basically you’re told, right, your premiums are either gonna increase by about 50% or your, some assures gonna reduce by a certain amount, which is usually quite a hefty drop, um, because of the fact that we’re now renewing it and you’re now this age. And, um, and that’s a really difficult situation because as I say, it could be that, you know, with these people that it, it might be, I dunno that their premium could be going from, I dunno, let’s say 300 pound a month up to 600 pound a month as a, as a rough example.

Kathryn:

I know that that’s a much more than a 50% increase. Much, much more. So <laugh>, yeah, let’s do 300 to 450 pound a month, there we go, 50% increase. Um, and they’re going, but I don’t, you know, this is too much. And, and I’ll say, right, well if I was going to guarantee that summer show for you right now we’re talking well over a thousand pounds per month because of the fact that we’re guaranteeing it, it’ll never change. That is obviously a huge step up from what they’re potentially stepping up to already that they’re not comfy with. But ultimately that other policy, it is just going to keep increasing, um, at the, at the renewals. Um, and there’s quite a few people, you know, sort like who, you know, I think as you saying, people just aren’t seeing them as value to money. So actually even though they’ve got this protection in place, which is amazing, they’re just sending up canceling them cause they’re just like, well it’s just not worth it.

Kathryn:

Um, and uh, and that’s a, a huge shame, but un unfortunately that does come down to, I think a lot of the time peop you know, people make choices that they want to make at a certain time. And as an advisor, I always think it’s important to turn on and go, right, this is the price. If guaranteeing this right now, there’s this one over here that’s a lot cheaper, you know, I’m not gonna deny it’s in existence. It is there, it is a lot cheaper, but there’s this huge bundle of risk that’s associated with it. And in terms of like the eventual premiums and everything. And I think that’s a really key thing. But as you say, inheritance tax planning, joint life, second death, make sure as well, especially if we’ve got cohabiting people that we have trust in place, that is a huge, huge issue.

Kathryn:

Um, to a point of, you know, I do know some advisors who, you know, with certain things, especially certain life insurances, they will just, especially if they’re co-habiting, they will just not put the policy in place unless there is a trust in place. They’re just refuse to. Yeah. And you know, that’s, you know, obviously to each advisor to their own on the way that we need to do that. Um, a big thing that I, my point of view is, is that there are some insurers who still require paper trust. I really advocate for them to change that. Um, and or at the very least to start to embed the payout planner on their internal systems, which really doesn’t take that bigger change in terms of the technical side of the, uh, website. Um, people might think, what do you know about that? Well actually, I know I don’t build an insurer’s websites, but I do dabble a bit within websites and Alan is from a tech background, <laugh>, that was before he was an advisor.

Kathryn:

So I know it’s not the end of the world to make an extra page on the application form to say here’s a pay planner. Um, but I do appreciate in terms of the compliance side of things and the background, the Ts and Cs and all that kind, it’s, it’s much, much bigger than just a website. However, you know, it’s, you know, there, there are many changes happening in that place that need to, but in also as well in terms of the online trust services, um, there are many insurers who have absolutely fantastic trust services. Um, you know, in, in terms of an insurer who isn’t maybe getting a lot of online trust done with them or maybe they don’t have the facility, you know, always happy for people to reach out and, you know, I can take them through a walkthrough without naming names, I can attempt to a walkthrough of systems that work very well.

Kathryn:

Um, and I’m sure they’ll probably know of those anyway. But just on the off chance that they don’t know what those systems are, um, you know, that there’s certainly opportunity to listen, to advise and say, look, this is working well, this isn’t working. Well have to say as well, there’s summons show us online systems that for trust that are so awful that we actually revert to paper ones because even though as we all know, paper ones have a much, uh, lower return rate, um, than it was being able to just do it online there. And then it is an absolute nightmare, some of the online ones and it’s just not worth it. <laugh>, it’s, it’s so much hassle and pain, um, that you just like, right. I’ll just go paper.

Matt:

You do feedback to the insurers. I know it’s a bit of a Yes. Yeah. I’m gonna say that’s, that’s pretty awful that

Kathryn:

Yeah, we, we do

Matt:

Feedback to them. It’s intrinsic to financial planning. Yeah. I, uh, I I find it almost dereliction of duty not having a one that can be used. Doesn’t have to be ultra slick, but at least one that could be used. So, um,

Kathryn:

Say as well in terms of trusts, you know, for, you know, all insurers that we would be, well the majority of insurers that we use have some kind of a trust facility. And so especially with those as well. I mean the payout plan, I understand that’s a bit different. So people would need to get legal teams, compliance teams involved, but the trust that already there, they’re already established. And again, it, it really doesn’t take much to make a website system, you know, a few more pages. You know, I imagine I say this, I imagine that insurance companies have tech teams or they have to contract people in and that they’re maybe not the cheapest of solutions. However, in the grand scheme of things, it really doesn’t take much to add in a few pages and, and to get a trust in there. Um, I’m sure somebody would argue with me on that. So I can think of a mutual friend, Matt, who might argue with me on that situation. We won’t name names but <laugh>,

Matt:

I don’t, I don’t think said individual would actually to go,

Kathryn:

Oh really? Oh, that’s

Matt:

Good particular points. No, no,

Kathryn:

No. All I’ll get brownie points for this episode then going, yes. I didn’t get any feedback to say I was wrong.

Matt:

Brilliant. I love the pun.

Kathryn:

<laugh>. And in terms of gifting to Viv Os, can you explain what a gift to Viv Os policy does for Matt?

Matt:

Right. Inter vivos.

Kathryn:

Yes.

Matt:

Wonderful term, isn’t it? And it’s lovely, lovely to see that the insurance industry still too takes its policy Latin, sorry to names. Its policies after Latin.

Kathryn:

Yeah, absolutely.

Matt:

Do you know what iVOS means?

Kathryn:

I dunno. But I’m just gonna say planning. Cause as far as I’m concerned is gift plannings <laugh>. I just,

Matt:

Well, you know what? I couldn’t remember when I thought, I thought this is the type of question that Catherine’s gonna ask me.

Kathryn:

Yes. What’s the Latin for this matter? <laugh>.

Matt:

So it, it actually means, I have to look this up by the way, cause I couldn’t remember what it was. But it means if it, so gift interviews or gift made while alive iVOS while live or interviews can also mean between the living gift made between the living.

Kathryn:

Ah, interesting.

Matt:

So, um, kind of a pub quiz fact that’s, uh, probably worthless to the, well vast majority of our listeners. But, um, so it does actually have a resonance, doesn’t it really? It

Kathryn:

Does. I was thinking, I, I’ll make sure that I am run anything as well past my, uh, Italian brother-in-law because it’s so similar. Obviously there’s so much rooted in Italian still. Yes. With Latin. I was thinking, I’m gonna say it from later, what does iVOS mean? Alberto? And see what he says to me. <laugh> <laugh>

Matt:

Probably from isn’t said gentleman from Siia. Yes,

Kathryn:

Yes.

Matt:

Ah, well there you go. You’ll know everything then.

Kathryn:

Oh, oh, I’m sure. I’m sure. Does he, he actually, cuz when we were came up with our named Kera, it was one of the things, it’s, um, so in Latin Kera means to care and protect, which is the reason that we chose it. And um, and we were choosing a few different names and uh, we put it to, to him and he was just like, oh, well that one, it doesn’t mean the same kind of care and protects, but Kira Yeah. That means to, to like, to nurture, to look after people. So yeah, that’s the best one. Um, and I was just like, it was lovely that, um, that we, we got that thumbs up from a, a native speaker that we were going the right way.

Matt:

My God, that is amazing. <laugh>.

Kathryn:

So there we go. We’re we’re Latin too. <laugh>? Yes.

Matt:

Good. Goodness gracious. What, what can I say? So, sorry. We, we’ll, um, gift I vivos policies. Okay. Now, um, as we’ve just talked about the, with the old Latin, um, these are are made while, uh, an individual is, is still alive. Um, and it’s, it’s it’s gifting away part of your estate, the various exemptions, um, available, but I won’t necessarily, I won’t go into those today. Um, I think a lot of our listeners will be aware of the 325,000 and your 500,000 each on domestic residences, et cetera. Yeah. Um, but effectively if you want to give a, uh, something away and it is a substantial amount, then uh, you can protect yourself against the, uh, inevitable tax bill which arrives Yeah. Um,

Kathryn:

Uh, will protect the giftee.

Matt:

Yes, yes. Absolutely. Yeah. Um,

Kathryn:

So the person who receives the money

Matt:

Protecting them, they wouldn’t have to pay any inheritance tax. Absolutely. Yeah. Um, sorry. They would have to pay inheritance tax, but the insurance policy mitigates that It

Kathryn:

Covers it, it, it gives them the money to, to be able to

Matt:

Do it. Money to pay, to pay it ab Absolutely. Um, now the, uh, in in typical style, the, uh, tax, um, on gifting lifetime gifts or potentially exempt transfers as they’re often known pets Yes. Um, is, is rather complicated. I’m not quite entirely sure why it’s complicated. Um, but it, but nevertheless it is, and effectively the tax is tapered and therefore the insurance policy molds itself around the inheritance tax that, that, uh, will become payable. Yeah. So therefore, basically, uh, as I say, most people hopefully will know that for the, the current rate of tax for um, uh, inheritance is 40%. Yeah. And therefore, um, on lifetime gifts, uh, the tapering of the amount of tax payable basically is if the gift, so it’s the date of the gift mm-hmm. <affirmative> and you effectively in year seven to eight, the uh, you will no longer pay any inheritance tax.

Matt:

Okay. Yes. And that tapers throughout that duration, not completely, but it tapers. So in the first, um, three years, then you would be looking at having to pay 40%, three to four down to 32, and it decreases by 8% thereafter. So four to 5 24, 5 to 6 16 67. Eight seven to eight north. Yeah. Um, and A G I V policy is effectively as a a one policy, but it effectively is a series of term assurances, which will cover that specific liability throughout that, um, throughout the, the seven year term. Now these policies, G I V policies, again, when I was about lad, they used to be very, very common. Mm-hmm. Um, but G I V policies, so that combination of term assurances that specifically fit are quite rare these days. In fact, I think I only, I think I can only think of two insurers, mainstream insurers actually offer them.

Matt:

Yes. So what’s happened, what’s happened over the years is that, um, insurance insurers have realized that just, um, making le your traditional level term assurance available. Yeah. So in fact you would have five strokes, six policies. Yeah. All individual policies, not all, not all under one like A G I V policy. And, um, and they would tailor the, the, the duration of those policies in with the I H T liability that will, will become payable. Yeah. Um, and that is much more a common way than it is done these days. But nevertheless, G I V policies do exist. Do you have a, do you have a view on how you would advise on those different types of policies? My, under my understanding is that the level term assurance by individual policy is, is, is often the way forward these days as opposed to G I v. What, what, how do you see it, Catherine?

Kathryn:

I think it depends. As you say, there’s only two mainstream insurer show us to offer the gift interview os policies. And in some ways it can be nice because it’s just like, right. It’s just one policy. It’s just doing its thing. In a sense it’s almost decreasing, decreasing cover in some ways because of the fact that it decreases at certain times. Um, but it is more, especially depending upon the risks of the individual, you know, it might be that you need to go somewhere else and then, and then what you can do is, so you would find out the gift amount. So let’s say the gift’s a hundred thousand, you’d then know that I h t was 40% for 40,000. So then you would be putting in place 40,000 pounds worth of, um, life insurance. Um, and as you say, Matt, you would do one for three years, four years, five years, six years, seven years. And each of those would have a value of 20% of the gift amount. Um, so I believe if I use the 40,000 option, I believe that means that it’d be, you’d have three years of 8,000, four years of 8,005 years, 8,006 years. Eight I think, I’m sure I’ve done that maths right. 20, no. Yes. 20%. Yeah.

Matt:

Know what you mean? Don’t worry. Yeah, no,

Kathryn:

I’ve done it. Right. 20% is 8,000 here. So we’ll do it that way. Um, and you can obviously have the benefit of LAN discounts, um, if you are able to use that or potentially, you know, not having to play menu plans, um, fees, um, if you were to, to do multiple ones all in one go, that one is that doing it that way in a sense is, is messier on the advisor’s part because you’ve then got five different applications going forward. You’ve got five policy numbers. And I think the key thing with that is when you speak to a client, if, if you are needing to go down that way, it’s just a turn and go this, you know, in some ways this could look messy and you’re gonna have quite a few documents. But that’s for me to sort, you know, I’m here to do the complex side of things and it’s more, you know, in a sense it’s more work for me.

Kathryn:

It’s not more work for them, you know, for the clients at all really. Yeah. You know, and you should obviously then make sure that they know obviously all of them into trust. And a really interesting thing here as well is make sure, cause I had such an, I did a podcast about this, um, recently with, um, Ruth and Roy. Yeah. Um, and the difficulty that I had, I was explaining I had such a nightmare with these trusts. Cause I used to, I had to use three different insurers for the, um, gift planning and each in trust I had to do a different one with completely different name. So one of them would be one with one insurer, but the same name to trust with another insurer is completely the wrong choice for different reasons. But you want to make sure that, you know, it’s in trust to the person, to the giftee, the person receiving it.

Kathryn:

But also make sure that whenever you are choosing your insurer, that you can use a trust that has the option for you to gift the terminal illness benefit also to the person who’s received the money. Because that was one of the issues that I was seeing for some of the trusts was that had an automatic retainment of the gift, um, sorry, automatic retainment of terminal illness benefit, which is absolutely the wrong thing to do. Cause all you’re gonna do is feed into the I H T liability. That’s, that’s likely there. Um, and then also you’re not gonna be, that person isn’t gonna get the money that they wanted. And ultimately, again, from an advice point of view, compliance point of view, that’s gonna end up with a nasty complaint for yourself as an advisor. And that’s not to, to scare people away from it. It’s just to say, just make sure it isn’t just a case of, oh this, you know, this insurer is the cheapest one, or Oh this is doing this over here or doing there and you know, they’re the best one for risks. Yes, we need to take that into account. We must also double check that that end trust result is gonna be able to do what we need it to do.

Matt:

Yeah, the terminal honest one’s incredibly good point. Yeah, yeah, yeah.

Kathryn:

It’s a bit of a, it was, I was gonna say it was a barrel of laughs sorting that out, <laugh>. Um, it was not fun in the slightest because as well, obviously we have a team, so there’s as advisors, as administrators as well, obviously our admin team do not and cannot advise on the trusts. But they will step in, they’ll help prepare some of it in terms of some of the, um, filling in people’s names, dates of birth and addresses and things like that. And, and with one of my team, bless her, she started going through it and she was just like, I’m not sure, but she was like, these have all got different names, I’m not sure what I’m looking at. And I was like, it’s fine, I’ve, it’s okay. And then she was just like, this one says this. And I was like, right, okay, that’s not fine.

Kathryn:

And I get a different one <laugh> and you know, and we were just having to sense it all out. So again, if you are an advisor, if you do have administrative support or planner, power planner or anybody there, and I’m sure power planners will be very on top of this anyway, but um, just make sure that you are really seeing all those key bits. So, um, I think we’re towards the end of the um, podcast Matt, and I’ll just use a case study for somebody who had, was high net worth and had high net worth policies. So those large policies as well for us to talk about. And uh, for these people it was a couple, um, they uh, needed some joint, uh, insurance for their mortgage and then some individual insurances too for general family protection. Um, overall there were sort of, uh, like say, you know, there were early forties, um, there were non-smokers.

Kathryn:

There wasn’t really anything in terms of, I was gonna say there wasn’t really anything in terms of risks. And then I’ll say this Matt, and you’ll think, hmm, but maybe there was, so one of, one of them. Um, the female I’ve had experienced some, um, tiredness and slight tingling. So straight away my mind, possibly your mind as well is thinking, well hang on a minute. We’ve got someone early forties here, female getting some tingling. There needs to be some tests, make sure that we’re ruling out things like multiple sclerosis, stuff like that. Has that been done? It’s, that’s what I’m thinking would be possibly thinking. She had had all the tests and everything, everything had come back normal. And essentially what it was, as we’ve said before, when people are high net worth, they’re often in quite high position roles. And it was a case of needing to kind of step back and just take it a little bit steadier.

Kathryn:

So nothing, nothing too intense. Um, but uh, but they did have, um, three young children under the age of 10. So we needed to get some good, good insurances in place for them. Especially as well when we’re looking at um, their, their income levels. And I think I heard one of my teams say this to me once and I, it really stopped, like it was interesting to me and she said, um, when she was learning and everything, she was like, she goes, but how come is it, how come somebody who’s got that much income, why do they even need stuff like maybe income protection or um, you know, life insurance? Cause they’ve already got lots of money. And one of the things I’d said to her at the time is I was like, but that also means that the financial shock to them could be even more significant than somebody who is living right to their means, right to their budget.

Kathryn:

Because they’re already there, they’re already budgeting, they’re already on top of things. Whereas people who are high net worth, often they are, you know, they’re spending their money, they’re enjoying life, you know, they’re enjoying to the standard of living. So it could be a huge shock, huge shock to the family in different things. And, and bearing in mind as well, I’m not sure specifically about this couple that I’m speaking about, but quite a lot of time people might have, um, private school for the kids. So we’re not just talking about, you know, protecting the home, we’re also talking about protecting the children so that when there’s already upheaval in their life from a loss of appearance, that they’re not also having to lose their social network, their community, their usual routines, which could have, um, quite significant impact to them. Um, so for this one, um, we arrange 3.2 million joint, uh, level life insurance over 15 years to cover the mortgage. And that came to around 380 pounds per month. And then we also did increasing 1 million pounds worth each for family protection over 20 years, making sure that all the children were at an age of independence at that point. And that came in total to 150 pound per month for both policies. So that’s the case study done, Matt.

Matt:

Excellent. Okay. I always think as well, one of the, one of the, one of the big sellers for, for the high net worth is that, um, it depends on whether you’re still earning or not. Yes. But they will be, particularly you get older, tend to be very asset rich and cash poor. Yeah. And if, you know, if if something, um, untoward happened, then the only real way of creating cash is selling

Kathryn:

Yeah.

Matt:

To the asset rich cash poor. And that is certainly something you want to avoid. Absolutely. Um, for the whole raft of reasons. So I, I always think that’s a big one as well. You know, it’s the, it’s the as asset rich cash poor type of scenario as say if you’re earning Q3 hundred thousand a year, that’s said of course if you suddenly cannot work again,

Kathryn:

<laugh>, that’s a big,

Matt:

Big, again, that’s a huge thing cause it takes the cash out, doesn’t it? It’s cash. What we live on, it’s not necessarily on remortgage I suppose, but it’s not something you wanna do at in later life.

Kathryn:

And you tend to find as well that from, from my experience with people who are earning quite a lot, as I say, is that, you know, they might, I dunno, let’s say someone takes home 6,000 pounds a month, you know, just as a random figure. And probably a lot of people who aren’t in that situation would think, how can you spend that much? And oh well if they couldn’t work, you know that well, you know, it’s, they’ve already had lots of money and it is just like, but you know, and how could you possibly spend that much each month? And what you’ll find is for people who are quite hit at work, high net worth, there will be lots of things going on, which means that they are spending that much and you know, it will be a big shot to them in terms of their standard of living. It’ll be, I say, a big shock to the family. It also means as well, especially if we are in that situation, they can well be full I FFAs involved in which point we’re getting assets are being put into pensions. We’ll be getting, being put into. Yeah. And that will stop. Um, so it’s, you know, we do need to make sure,

Matt:

Let’s be honest. Yeah, it’s a huge can be,

Kathryn:

It can be massive, absolutely massive. But there we go. So I hope everybody’s found this really interesting and thank you as always for your insights. Matt,

Matt:

Catherine, can I just interrupt you just for two seconds there? Sorry. We, we, um, we didn’t actually get onto large case international business and Logan. Oh,

Kathryn:

Okay. Yeah, go for

Matt:

It. No, I don’t, I think, I think, to be honest with you, that is a topic for another day.

Kathryn:

Okay. They’ll have that for another day

Matt:

Then. Yeah, I would, I would say, um, let’s use that for another day, or, or is a part of a discussion for another day. Cause I think it’s, um, you know, it it it’s certainly not a a a two minute discussion, let me put it that way. Is that okay?

Kathryn:

Yeah, no, absolutely. Cause I know that there’ll be certain things, you know, there’ll be certain things but involved won’t they, in terms of like the health ratings I think for the countries that they’re in, health indexes and everything like that. And, uh, maybe we can talk about America as well. Maybe we can do a little bit of demystifying about that. So, no, that sounds good. We’ll, uh, pencil that in for the new year. Absolutely. Fantastic. So next time I’m gonna be back with Martin Stewart from London Money and he’s gonna be talking about the current mortgage market and how protection insurance is now more vital than ever. If you’d like a reminder of the next episode, please drop me a message on social media. I’ll visit the website, www dot practical hy from protection dot code uk. And don’t forget that if you’ve listened to this as part of your work, you can claim a CPD certificate on the website too. Thanks to our sponsors, the Optum members. Thank you again, Matt.

Matt:

My pleasure.

Transcript Disclaimer:

Episodes of the Practical Protection Podcast include a transcript of the episode’s audio. The text is the output of AI based transcribing from an audio recording. Although the transcription is largely accurate, in some cases it is incomplete or inaccurate due to inaudible passages or transcription errors and should not be treated as an authoritative record.

We often discuss health and medical conditions in relation to protection insurance and underwriting, always consult with a healthcare professional if you are concerned about any medical conditions and symptoms we have covered in any episode.

Episode 6 - High Net Worth

Hi everyone, we are back with Matt Rann and talking about high net worth protection insurance applications. We are talking about what makes a case considered to be high net worth and how advisers and underwriters might classify these differently. We are having a chat about joint life second death insurance, gift planning and what a retrocessionaire is.

The key takeaways:

  • High net worth clients do not always mean high net worth policies.
  • Most insurers have large case teams that typically handle policies with value over £1m. 
  • Keep an eye out for the gifting of terminal illness payouts if you have done a policy for gift or IHT planning.

Next time we have Martin Stewart joining us from the London Money group. He is going to be talking about the mortgage market, why protection insurance is more important than ever, plus his question about why do we need the FCA Consumer Duty principle, surely we’ve all been doing these things already?

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors Octo Members.

If you want to know more about how to arrange protection insurance, take a look at my 13 hour CPD Protection Insurance in Practice course here and 1 hour CPD Protection Competency Exam here.

Kathryn:

Hi everybody. I have Matt, man back with me on this season, um, six, episode six of the Practical Protection Podcast. Hi, Matt.

Matt:

Good morning. How are you?

Kathryn:

I am very good, thank you. I've got a, a lovely cup of tea, a little bit, uh, little bit cold here. So I've got a lovely cup of tea to keep me warm and I'm very, very, uh, very happy to be having a chat with you today and, and how are you today?

Matt:

Yeah, keep keeping well, thank you very much. Um, uh, uh, uh, another birthday went past last week and, um,

Kathryn:

Oh,

Matt:

Lovely. What can I say? So, uh, I'm, I'm still not an old age pensioner, I'm afraid <laugh> in terms of the state benefit anyway. Um, well, I think

Kathryn:

I tried to think of what alb when the state benefits suddenly says when I, I'll get there. 80.

Matt:

That's a bit of contentious. I'm sorry about that. <laugh>.

Kathryn:

No, no, I was gonna say

Matt:

Db and so, and I went down to, um, had a, had a lovely late, uh, tea down down in Manchester.

Kathryn:

Oh,

Matt:

Lovely. A very nice day. And the sun, Sean, it didn't rain in Manchester, which is saying something I have to say, so yes. Oh, very nice. Good. Thank you very much indeed.

Kathryn:

Very, very good. Well belated happy birthday to you. Thank you. Today we're gonna be talking about high net worth protection insurance policies and how underwriting can be different for these. This is the Practical Protection Podcast.

Kathryn:

So Matt, I know we always have a little natter before these things and, uh, just make sure that we're, we're both completely on track in terms of the context of some of the questions that we're, we're gonna be going through and what we think sort of are, are conversational will, will broadly go as, but we're always just, uh, generally having a good na as I'm sure people can tell. And I think what's quite interesting is, when I was thinking about the first question I was gonna present to you is that we've chatted beforehand and, and kind of like started to already <laugh> started to talk about this data of things, which is in it sense from an underwriter's point of view is what's considered to be a high net worth insurance application, say, may be different to what an advisor like myself would see. So I suppose that's a good way to start off. So in a sense, what does it mean from an underwriter's point of view for an insurance application to be considered to be high net worth? Um, because there are specific teams, aren't they, that in the underwriting teams that will specifically handle cases that are considered quite large?

Matt:

Yes, yes. AB absolutely not. Everybody has a a has a large case team and I'm going to immediately go, go into underwriting mode in

Kathryn:

Terms Okay, go for it.

Matt:

So, so I'm just gonna be, I'm gonna be an underwriter for a sec, not a second and next couple of minutes, but yes. But those, those teams are, uh, um, can be accessed by the iass and by distributors. Um, and they are nearly all of the main high street, um, insurers will have a high net worth team, or I think probably more commonly caused, uh, called in, in underwriting circles anyway, a large case team. Now there, there is a, um, another, uh, phrase that is used, um, within the, the high net worth or large case space, uh, ca, uh, space. I trip my teeth, um, called jumbo risks.

Kathryn:

Oh, right.

Matt:

They, they maybe in a bit of an old fashioned term. Um, but those risks are generally ones which are, and I would have, I'm gonna be have to be a little bit general here in my comment. Yeah. But probably over around 20 million for life.

Kathryn:

Okay.

Matt:

Okay. Jumbo elephant, big, large. Yes. That's the kinda, uh, where, where it all comes from. No surprises

Kathryn:

There. I'm seeing an elephant covered in money. That's my visual now.

Matt:

<laugh>. Absolutely. Absolutely. Um, so again, high, high net applications, um, is in my experience, at least a term that is, is often used by, uh, IFAs in particular who have a high net worth client. Uh, um, again, how you define a high net worth client is really, I think down to the individual if a, but I would say you are looking at, um, a, a net worth, uh, and we'll go into that a little bit later on and, uh, uh, inheritance tax, I'm gonna talk about that a little bit later on Yeah. Of around, let's say 2 million or so. Yeah. Or war is earning, you know, in, when, in excess of say 200,000 pound per annum. Okay. That high net worth client, um, can often, um, only require small amounts of live cover or kick or ip Yeah. Which would not classically be turned a large case and may not go into a large case team.

Kathryn:

Yeah.

Matt:

Um, so I think we have to be a bit slightly careful here around how we, how we define a, a high net worth application. Cause I always think high net worth is more around the individual Yeah. Is more about the policy size.

Kathryn:

Yes. Absolutely. I, I, I completely agree in terms of policy size, I'm just thinking, um, uh, there's somebody I've been speaking to recently and, um, and their net worth is, is considerably more than 2 million as you were just mentioning there. Yeah. But the insurance policy that's needed is only about 600,000 pounds. Yeah. And I wouldn't consider that policy as high net worth or going to the high net worth team. So I, I do think it's important that, you know what you're saying though in terms of this definition. It's, it's, it's important to sort to like separate sometimes the person from the policy and think, right, well, well actually with the insurer we're, we're, we're speaking about the policy here. Um, I mean there can obviously be specific connections though, can't this to say, so as an example, if somebody is earning 20,000 pounds with a salary every year, and let's just assume that they don't have a mortgage that's more than say 200,000 and they come and they're wanting 3 million pounds worth of life insurance, that's obviously from an insurable interest point of view, as an advisor, we'd be probably stepping in and going, is is the insurable interest?

Kathryn:

There is the need there. But I imagine as if somebody had gone direct to an insurer and they wanted that kind of cover and they're in that kind of situation. What would be, and I know you can't speak for all insurers or all underwriters, but isn't there sort of like a bit of a stance at some point where it's like, well generally insurers are happy to go by a certain multiple of salary as sort of like seen as like it's maybe, I dunno, maybe 20 times salary or something as a maximum ballpark figure unless there's that real considerable need and interest being, um, discussed.

Matt:

I think you, you, you're absolutely right as, uh, in in ballpark figures then multiples of salary are, are linked, um, to the individual, the younger you are generally. And if we've got more the work, uh, length of time to go in terms of working life income generating years, um, the, the higher the multiple is salary and it'll go down to about, uh, five, uh, when you become 55 60. Although that's probably possibly a bit contentious with people working often well beyond 60, 65, 70 now. Yeah. I would say though that, um, and, and you know, over the years I've seen many, many cases on similar lines to the one you've just said. I would always say, look, look at the insurer's guidelines. And I would really emphasize here, these are guidelines only.

Kathryn:

Mm-hmm.

Matt:

If there is a story to run alongside, let's say the case that you just mentioned. Yeah. The need, yeah. I then the need and the loss on death. Cause ultimately that's what you're looking at. It's the loss on death, isn't it? Yeah. If there is a, an, uh, a need there, um, and it can be explained, then underwriters will, will, uh, think outside the box and, and potentially from the circumstances give 3 million in the, in the scenario you just mentioned. Um, so really, you know, I, I wouldn't necessarily be bound by the multiples of salary for personal protection, uh, on life cover. If there is a story to be had, then tell it. And the majority of those underwriters who, um, being happy, a little bit careful here, but who work on the high net worth teams or the large case teams Yeah. Um, will, will, will certainly listen, listen and see what they can do. Yeah. So, so those multiples, um, are rather interesting. And also you get into all types of funny I say funny, frustrating situations where those multiples might happen to be on an, um, on a, an automated underwriting system.

Kathryn:

Yes.

Matt:

<laugh>. So, so, uh, you know, again, it is, I think it's worth alerting, um, uh, an underwriting team to a particular client of yours maybe before you submit it just to say this is on its way. Um, or, and you are under, and even if you do submit it, the underwriting, uh, automated rule has said, right, okay, we're gonna limit this to, let's say 20 times. Yeah. But there's more to it, more to this case than meets the eye and, and therefore get it, you know, get to that automated decision turnaround. It's one of the, it's one of the challenges you have with automated systems, to be honest with you. It takes away the flexibility that a human intervention can make. Does that help in that particular example?

Kathryn:

Yeah, it does. I was thinking in terms of the automated systems, like going back to what you said before, like where, when we're starting to maybe think 2 million is possibly gonna start being looked at by the, the large case team is, as we call it,

Matt:

That's maybe high net worth worth. Sorry, the, that was an example I was using on a kind of a high net worth scenario. Um, in terms of a high net worth individual, if you are looking at the policy, if I can revert back to policies, policy sums assured, then generally I, I'll just go life only for, for the sake of the time that we have today, um, we'll, we'll kick in this around a million or a million and a half for life. So look, if you look at the sums assured, then that's usually the sums assured that will go into a large case team that that figure does vary amongst different insurers. Sorry to interrupt Catherine. I just just wanted to, to be, um, a little bit clearer in terms of what an underwriter and a large case team would consider.

Kathryn:

Yeah, no, absolutely. That's really helpful. Thank you. Um, sorry, I, I muted myself because, uh, fudge started to have a barking fit. So, um, just

Matt:

<laugh>,

Kathryn:

Nobody wants to hear that's all cuts. How his barking. Does he,

Matt:

Cause he disagree with me then <laugh>. Yes.

Kathryn:

He's clearly got my back. Yes. No, he's

Matt:

<laugh>, <laugh> good. He's just

Kathryn:

Seeing someone outside. He's just having a moment <laugh>. But no, I think that is really helpful. Cause that's why I was thinking, I was thinking, well, a million pounds, I would expect that, you know, in terms of the applications that we do, but getting towards that minute, assuming that we're doing it all in one policy and with the same insurer and that we've not split across multiples, I would be expecting a million pounds that a lot of the time that it would be going to, um, it wouldn't be going through necessarily straight online and, um, that we'll be doing things like triggering, quite likely, possibly triggering things like maybe GP reports, nurses screenings, medical underwriting is, is that what we can expect? Except, and they'll also be sort of, there's a time as well, isn't there where there's financial underwriting comes into place?

Matt:

Yes, that's right. And in terms of the, the medical side, yeah, it very much depends on the age, of course, as you, as you work very well know, um, uh, non-med limits medical limits are based very much on age, the younger you are. And on the, on the basis you've made no, no adverse disclosures, um, comments about your preexisting medical history. That is, um, then, uh, you know, you can get quite substantial sums assured with, with no medical. Yeah. Um, some insurers require an automatic G P R.

Kathryn:

Yes. Uh,

Matt:

At any sum assured. Um, so it, it varies, it varies amongst insurers, but you, you're right, in general terms, the, the higher the sum assured rather dependent on age, um, the, the, the more, uh, evidence you will get, particularly the, I mean, I would say maybe outside the London domestic mortgage market, then most of the large cases that I see tend to be people over the age of 40.

Matt:

Yes. Certainly 50, 60. And then you start getting into IH to inheritance tax Of course. Yeah. Um, so, and they'll be kicking off, um, automatic requirements at a, at a smaller summary short. So absolutely. Right. In terms of financial underwriting then, um, it kind of maybe ties in a little bit to what I was saying before about underwriting guidelines and the, the 20 times salary example that you used. Um, then those, again, when they start to kick off, they depe, uh, uh, vary within the marketplace. And also there's the sums assured, which, um, will generate a third party verification of the financial evidence. Yeah. So what I mean by that is typically on an on, um, in terms of inheritance tax, then the larger sums assured then you, uh, a letter, um, or email, uh, from the tax advisor, yes. Independent tax advisor or accountant would, would generally be required.

Matt:

Um, business covers, things like shareholder protection, for instance. You won't want to, you be, uh, looking at therefore basing your, some assured on the percentage shareholding that an individual may have that will therefore go down to the, the valuation of the company. Mm-hmm. <affirmative>, which are pretty notorious. I think in terms I say notorious isn't the right word. Difficult for, uh, most advisors to try and calculate themselves. Then again, the, the, um, a a third party accountant would, would, um, need to produce independent validation. So yes, it does trigger, uh, additional evidence and, um, dare I say it goes with it, uh, seven times, particularly on the financials, uh, delays.

Kathryn:

Yeah, no, absolutely. I was gonna say in terms of like things like the shareholder protection and, and things like that, you know, which, which we do, I've, I've been involved in that quite a bit is Yeah, one of the things I always do is it's just like, like what's the accountant, you know, basically the accountant needs to value this because ultimately as well, I think a key thing there is that, you know, some advisors might feel confident and do stuff like, but going from my compliance head and be always the, the area of complaints and what can we do to minimize that, I always think along the lines of that's not my expertise. You know, I'm valuing a business and ascertaining the value of each share per person and to their potential allocation. Especially if it's like the share holding is split a different percentages per person.

Kathryn:

Um, it's just way outside my, my day-to-day thing. And ultimately an accountant will have evaluation of the business. You know, that's, especially when we're talking a lot of the time, the level when we're talking, people are really wanting shareholder protection or a sort of like, prepared to start to think about it because they're thinking, hang on a minute, we're actually all worth quite a bit here. We should probably ensure ourselves, um, you know, you are getting to the point where there's, there is gonna be accountants absolutely involved. Um, and yeah, they will be able to, to give you that information quite clearly and in the format that the insurer needs because it'll all be, um, provided in the, uh, correct way. I think I was quite interested as well. Um, I think I've, uh, skipped over this question. It was gonna be one of my other ones, I think I jumped ahead slightly, is the fact that, you know, we do see as advisors, and I know we've got someone, there's a couple of us in our firm who we would specifically have as being there for like the high net worth, um, side of things.

Kathryn:

And I think this is sort of a bit of an interesting one because it almost, it almost flips in terms of the context that we've been discussing. So we've been saying our high net worth, you know, just cuz the individual might have a higher state, it doesn't mean that the protection policy is gonna be high net worth. Whereas sometimes for ourselves we consider our high net worth advisors, again, it, it might not be that they're gonna go for the biggest insurance's policies, but it will be quite linked to the person's net value because we know that in those situations are certain, um, barriers, you know, sorry, when we're getting to them that we're starting to do, like what you said, we are starting to hit i h t levels, we're starting to go into gift planning, things like that. So we have some of our team who are specifically, um, focused on that area.

Kathryn:

And, but then again, as, as it was saying though, so the, the individual there is a high net worth but the policy might not necessarily be high net worth. But yeah, there is a certain amount of complexity but, but then there are obviously as well and know and a number of firms where they are purely high what they were class themselves as high net worth advisors. Yeah. Um, and I think that's quite interesting because, you know, I think a lot of us in the advisor space, we, we don't always speak to people with, you know, huge estates. I think sometimes you think is it that many people in the UK with that much value that, you know, kind of thing that we have these dedicated teams, we have these dedicated advisors. And I think what's quite interesting as well is cuz because of the fact that we know it is gonna go to a large case team and depending upon the value, but let's say if somebody needs 2.15 million in life insurance in, in the process generally of the application, the fact that we're gonna be going for medical evidence, it's not that different to say going for say 500,000 if that person happened to need medical evidence.

Kathryn:

The, the only addition really is that financial, um, questionnaire to my knowledge. And I think what would be really interesting is to get your take on what do these large case teams, what, what is it that's so different about that client set that we need dedicated teams. That'd be really fascinating to know.

Matt:

Okay. I think there's, there's two angles to this. I think there is one from the individual. So the life, let's say the life assured to keep it simple and um, potentially might be a little bit of a contentious thing to say, but people who are generally are worth millions want a, uh, a supremely slick and problem free service. Um, it is the nature of the, of, of the, uh, world that they live in, um, that they want everything pain free, they all want it yesterday. Um, they want it. Yeah. Simple, simple. And where they don't have to spend much time on it at all. You know, a lot of large, large, large, large case lives assured they don't even wanna go for a medical exam. Yes. For instance because, you know, they seem to see its time out and, and unfit and therefore, et cetera, et cetera.

Kathryn:

I suppose as well, quite a lot of people in that situation are quite successful business people Correct. Who are doing, um, working obviously very long hours, very intensely. And, and as you said, they are just very much, um, what I class as a red personality. I'm a red personality myself. Um, but you know, it's just a case of I want this done. If you can't make it easy, I'll go elsewhere or I just won't even have it kind of thing, even though I know I need it, even though, which is, it's not a good way to <laugh> it's not a good way to sound like people, but it's the way that people are <laugh>.

Matt:

Yeah, absolutely. Some people certainly. And, and it tends to be a characteristic of this socioeconomic group in my experience. Yeah. Um, and therefore from a high net worth individual, a special slick problem free service is what is required and there's an element of high net worth underwriters job to make sure that that happens.

Kathryn:

Yes.

Matt:

In its crude terms, the, uh, the larger the policy, the large, and I'm going to, this is very, very obvious, but in its crude terms, CS that larger the policy, the larger the risk to the insurance company.

Kathryn:

Absolutely.

Matt:

And therefore, if you're going to, um, take on a risk of several million and I can go on to larger sums assure than that, then you want your most experienced and savvy underwriters signing off that risk.

Kathryn:

Yeah.

Matt:

And therefore your high net worth teams, or your large case teams in the market tend to to be staffed by those types of individual. Yes. Okay. So you've got a, you've got two parts to this. You've got the actual client service and you've got a, you know, you have a very experienced underwriter looking at all angles and all ways of making it happen as soon as possible.

Kathryn:

Yeah.

Matt:

And there's many, many, many ways of making things happen as soon as possible, I can assure you. Yeah. I can't give my trade secrets away of

Kathryn:

Course. Oh no, no, of course. Keep

Matt:

That. I'm <laugh> I'm already pull you leg. Um, but also there is the, the absolute strip bear. What does an underwriter do? And they're risk managers at the end of the day, um, for the insurer and therefore they have to make sure that they get it right.

Kathryn:

And of course

Matt:

That's why you tend to have high net worth teams staffed with your more experienced underwriters. And but also in my opinion, I always set up my large case teams in, uh, my previous lives with people who could think outside the box. Yes. Who would go the extra mile for a client. Um, now as I say, this is why I think that this kind of area can be a bit contentious cuz surely you should do that for every client, irrespective of the, some assured in terms of the client's experience, I mean by that. Yeah. Um, and, and I think there is, there is something to be said for it, but we do live in a commercial reality and you know, that's, that's the way that the industry is currently. Um, but just that

Kathryn:

Make sense. I was gonna say

Matt:

The client side, but it was also the risk management side has to be Bob on as well.

Kathryn:

Yeah. The thing is, I think it's one of those things, isn't it? Where, you know, it's from, from, from an advisor point of view and I think a lot of advisors who don't handle, uh, cases that are that value, you know, it could be frustrating to think, well, hang on a minute, I want a slick through process for my people and I, and it's, but ultimately I think it comes down to that whole thing as well, isn't it? That this is the way that things are structured. You know, it does make sense that if Finn show is taking on a significant risk, that they're gonna wanna make sure that somebody like almost in a sense, an underwriter kind of making themselves into a mini compliance person in some ways, you know, you said risk manager, they're gonna want to make sure that that is, that case is looked at through and through that everything's been sorted in terms of the, the medical underwriting and there's, there's no, or there's incredibly minimal risk for things to have not been spotted that needed to be spotted. So I think that's

Matt:

Fair. Could, could be spotted. Yes. AB absolutely. Yeah. We we're not kinda, um, looking at a high net worth case, um, being a kind of like a, a super healthy individual. We're not looking at that. We're just making sure that it is done. The, the, the underwriting process is carried out to the, the best level that it is possible. Yeah. That's what we're trying to do there. And hence the experience of the underwriters tends to be not higher with the, in in the high net worth team. Um, and the, as I say, there are two elements to it. One's one's risk and one, one is client experience.

Kathryn:

Yeah, no, absolutely.

Matt:

Does that, does that help that particular question?

Kathryn:

It does. It does. It really, really helps. Thank you. Okay then. So in terms of the next question, cause this is something I've seen sometimes and it'd be, um, interesting to get your thoughts and it, because I think, you know, we might, you know, in terms of like loadings and stuff like that, in terms of high value policies, you know, to the best of my knowledge, if, you know, if somebody has a health condition, which means they're gonna get a plus 25% on the premium, um, in terms of somebody who's a high value policy, you know, they're gonna still get the plus 25%. You know, unless there was something in terms of, I, I don't, I don't know, but it's not gonna be such like, oh well cuz it's this much we're gonna go up to a hundred percent because, you know, we don't wanna, it is so much risk cuz that's to the best of my knowledge and, uh, if, if it was other than that I would completely, uh, understand you not talking about that side of things, Matt.

Kathryn:

But, uh, I don't think that is the case. Um, but I do know that especially if we're starting to look at sometimes some people who are in the international space, um, and we're ensuring them that that can sometimes with a sub assure actually end up triggering going to per mil ratings because of someone being, um, based outside the country for, for quite a long period of time. Um, so I is that in a sense is, am I right in thinking that, so in a sense, health conditions would be considered pretty much the same as someone who was, you know, whether or not it's 5 million or a hundred thousand being took out it pretty much considered in the same way. But there are things that potentially travel or, you know, potentially some spots and different things like that that could, you know, change things into a more of a per mill side of things, which, you know, on the types of summer shows that we're talking about would be significant increases in terms of the premiums.

Matt:

Okay. I think, um, there are two angles to this. I must admit when I, um, uh, looked at the question, um, I thought maybe you are, but I, I was thinking more of, um, if I can put international just to one side for a second.

Kathryn:

Yeah, absolutely. In,

Matt:

In in the uk, uh, you'll get, um, insurers you could probably argue more, the reinsurers are introducing, um, premium loadings, um, at certain sums assured

Kathryn:

Right

Matt:

Now why they do that, um, is, is an interesting one. And I think I'll probably keep off the whys and the wheres

Kathryn:

As well. Of course. Yeah. But

Matt:

Either, either which way, um, you'll find that some reinsurers, um, sorry, let's say insurers first. Let's take reinsurers out of it for

Kathryn:

A second. Yeah.

Matt:

Cause it's the insurer who fronts all this after all. Yeah. Um, we'll, um, we'll start to load it sums life, life only sums assured as low as 10 million.

Kathryn:

Okay.

Matt:

But certainly it's a little bit more common at 20 million. So for a start, I think you're looking at pretty big sums assured before those types of loadings getting, uh, are, are involved. Um, now some insurers, um, won't load at all, even on very big sums assured. So again, it's find, you know, it's, it is finding your insurer there.

Kathryn:

Yes. As always, we need to make sure that we

Matt:

Quite, quite well. When I think on this particular element, it's, it's, it's, um, it's, it's certainly worth it. Cause it can mean one heck of a difference on in terms of the premium. You, you guys, um, sorry, I, you guys, I mean by that I will probably seen when they've gone to their com, their price comparison sites, they would've seen that some insurances will only quote to a certain amount.

Kathryn:

Yes.

Matt:

Or they won't hold over a certain amount. And, and that's the trigger, the clue that there's gonna be some potentially some kind of loading involved in that. Okay. Now if I go back to this is, this is where, um, um, I suppose egos come into it to a certain sort of way. And e even underwriters have egos, believe it or not. And, um, I I do remember being part of a case, um, amongst many insurers, I would say that placed 148 million on a single lady.

Kathryn:

Oh wow.

Matt:

I h t and

Kathryn:

Oh wow. That's, that was the 40% on the I h t side.

Matt:

Absolutely.

Kathryn:

Oh, and

Matt:

Uh, and by the way, that wasn't a enough and, uh, there was, there was no explicit loading, additional loading to any of that cover.

Kathryn:

Right. I mean, that's, that's a phenomenal amount of risk for the insurer.

Matt:

<laugh> Well it's, it's, remember you, you, you read, I dunno if, is it Tim that you had on, uh, this, this year from how

Kathryn:

Yeah, yeah, absolutely. Could

Matt:

You talk about reinsurance and Yes, it works. Yeah. So I won't go into it again, but of course this, this hundred 48 was spread across whole of the UK market. It was spread across all the UK in, uh, uh, reinsurers and also the retrocessionaire as well. Mm-hmm. So it was a completely, it was a very much a global risk. Is that,

Kathryn:

What did you just say, retrocessionaire?

Matt:

Yeah, absolutely. These, that's

Kathryn:

If I trust session air,

Matt:

Ah, sorry, I'm not sure how to, this is, um, I'm sorry. I couldn't remember how much information Tim went into, so I was

Kathryn:

No, that's fine. I just, I feel like it's a word that I feel like I've missed out on all my life. It feels like a very unusual word. It just feels strange to say it <laugh> and really want to know what it's now <laugh>.

Matt:

Yeah. Well I gonna tell you now. Thank

Kathryn:

You

Matt:

<laugh>. Right. Ok. Um, well, effectively, uh, as you know, uh, in very simple terms, reinsurers, insurer, insurers.

Kathryn:

Yes.

Matt:

Retrocessions ensure reinsurers.

Kathryn:

Okay.

Matt:

So it's the third level.

Kathryn:

There's another tier,

Matt:

There's another tier. Good way of putting it. So is that,

Kathryn:

Is that essentially stakeholders that just bundle a lot of money together and say, use this?

Matt:

No. Okay. Use these are, they are generally reinsurers. The retrocession is it generally reinsurers, but will operate in the wider marketplace, if you like.

Kathryn:

Okay.

Matt:

O other than having just a single relationship with our insurer, they will look to ha to, to, to cover jumbo risks across the industry.

Kathryn:

Okay.

Matt:

But they, they're generally reinsurers who do that.

Kathryn:

Okay. That's interesting. I was gonna say I've Googled it while, while you've been describing it to me, I've also Googled it. Cause I was like, I wonder how I spell that. I just, I Oh, right. Yeah, I was gonna say, it's really intrigued me. I'm gonna be, I'm gonna have to try and use that word in some kind of conversation today with somebody. I, I love it. I thought what it is, I just really love that word <laugh>.

Matt:

Just, just really the best way to explain it. Forget that they are re reassured, which they are, but just, just think this is a third layer. That's the, that's the way I always try and explain it anyway.

Kathryn:

Is there a fourth layer?

Matt:

Not as far as I'm aware. No.

Kathryn:

Okay. Right. Okay. So, so they're the end layer.

Matt:

Yes. They, they, they will ultimately will govern the maximum assure that can be placed on,

Kathryn:

On an,

Matt:

You know, end off really. And they're global. And you can get in some fascinating decisions around, um, how, I don't wanna get too much away here. I shouldn't Yeah,

Kathryn:

No, of

Matt:

Course. How the American market will look at UK risk.

Kathryn:

Uh, that's really interesting you mentioned the American market because, um, I was just doing some insurance for somebody recently and, um, they're due to be going and living, um, in North America. Yeah. And it was that whole thing of saying, you know, self frank saying like, well I need to do this before you move <laugh>. You know, in a sense because, you know, there's so many And then there was saying about trust. I was like, right, you're gonna need, you know, you need to get legal advice in terms of the trust because you know, there's, there is a real thing isn't that there's like treaties in place that say that we can't do, um, we generally can't do insurance advice for people who are in, um, America. Um, if we're based in the uk I'm sure there's some iass who do, and I I do know iass that do, but you know, it usually then does involve solicitors because of the amount of legal, um, contracts that need to go into place in terms of the diff the way the different financial systems work. Sorry, I just went on a bit of a side tangent there. No,

Matt:

No, no. Yes. It's not a nothing to do with insurance treaties by the way. This is their licenses, but I'll uh, I shall, I shall leave that one alone for the

Kathryn:

Minute. Yeah, no, absolutely. Uh, well we don't want you saying anything you're not allowed to say. I'll just be

Matt:

<laugh>. I don't think there's too much there. It's, it's just, uh, we, we've just got a limited amount of time, that's all. Cause we could whole morning about some of these things, but, um, I'm being a, a little, maybe appearing a little fickle don't mean to be.

Kathryn:

No, no, absolutely. And so, and you know, when we're talking about this, obviously we've mentioned the high net worth side of things, the fact that there's, sometimes I've heard tomorrow's large cases, the fact that a high net worth individual doesn't mean a high net worth case, but then also vice versa of that. Yeah. But you know, I think a good thing that we need to talk about a bit is inheritance tax planning and gift into Viv Os. Um, both things I'm familiar with, but I will obviously chat to you about them so we can help people to possibly understand them a bit more. So in terms of the inheritance tax planning, that is gonna be, um, where we need to be starting to, um, kick into place some protection, some financial protection for what could be the potential tax on an estate when somebody passes away. So what kind of policies would you generally recommend for that kind of situation, Matt?

Matt:

Okay. Just, just to be a hundred percent sure here. I, I wouldn't recommend,

Kathryn:

Oh no, sorry not. No, no. Sorry. I

Matt:

Know, I know where you're coming from. What

Kathryn:

Would you usually say as an underwriter? What would you usually expect an advisor to come to you and say, I need this, if somebody was, uh, wanting that.

Matt:

Absolutely. Um, well, again, very much down to individual circumstance. Um, and therefore the, the detail of the tax affairs of the individual do need to be, uh, considered in detail by the, uh, the, the advisor here in terms of the products. Um, then if I'd have been sat here 10 years ago, I would've said the most common product for a married couple, um, or civil partnership, et cetera, um, would've, would've been a, a joint whole of guaranteed whole of life. A second death policy. Yeah. The second death, as you know, is around that, is when the actual tax liability happens Yes. Between houses. Um, and that would be your common one. Now, what has happened in the marketplace, the cost of the guarantee went absolutely skyrocketing, um, over the last 10 years. And they almost became obsolete, um, in the UK market. Uh, cause even those folk who had an awful lot of money just didn't see them valued for money, which is a debatable one.

Matt:

If you lose a, if you use a a a guarantee, uh, sorry, a whole of life calculator. Yes. Which available on various websites to, uh, explain how the premium works against the liability, et cetera. However, yeah, the perception was there and really what is, um, what was taken over from those is a joint level term assurance second death. Mm-hmm. <affirmative>, which is, uh, noticeably cheaper. But of course a level term assurance has an expiry date. Yes. Um, and it, it doesn't provide the whole of life cover, which is one could argue is, is really what you need on a, on an inheritance tax liability. Yeah. But nevertheless, they are popular because A, um, uh, they're cheaper. Uh, and b because, uh, financial planning, I'm, I'm seeing it more increasingly, and you, you, you, um, please shout as well what, what you said, um, that that particularly younger couples in the thirties and forties, fifties even, um, will say, right, I'm just gonna take out 10 year term assurance, second death cause I'm not gonna sort out my estates and gift things here and gift things there and, and get my tax wizards on this. And, um, and therefore by the time I'm, I get to my seventies or eighties, I'm saying this is when maybe, maybe most people pass away. Yeah. Um, you know, my, the, the tax that I may be giving the union revenue will be, um, an awful lot less.

Kathryn:

Yeah, absolutely. I mean

Matt:

A short period. So I, I now, um, from my perspective, I see a lot of term assurance second death in the kind of 10 to 20 year category.

Kathryn:

Yeah. I mean, we do sometimes see um, things like things like that and, you know, very similar to what you say. So, so a bit of a, a tip that I would be trying to say to advisors, you know, if, if you see the need for inheritance tax planning, you wanting to do the whole of life insurance, you know, it's not going to be cheap. You know, especially when we're talking somebody who's in that kind of a value. Um, and you know, you might even be, you know, there could be arguments to do at R P I links because of the fact that the value of the estate could be getting bigger and you know, even then it still might not keep on top of that. Cause I think what a lot of people probably don't think about or factor in is just how much property values have increased over the years.

Kathryn:

Yeah. And how that could very, very quickly be putting people into an I H t um, risk. Um, so if you are trying to do an advice for somebody and you can see that they need whole of life insurance and they're just going, look, I'm just not prepared to pay that, do them the term courts, you know, at the very least I've sales from a compliance point of view as well. You know, make sure you've quoted them for whole of life. Quote them to age 90, quote them to age 85, quote them to age 80. Obviously the very, depending upon their, their age as well as to the people that they're talking about. You know, do that. Try and get it on a guaranteed basis as well if you can. Because I'm seeing more and more people and I have had somebody contact me recently, you know, and Maha actually goes out too then.

Kathryn:

Yeah. Yeah. And because of the fact that they've taken out these, uh, policies and I have quite a lot of people in a sense brought to me to have a look at these existing policies who have maybe done like a unit linked basis. So quite old ones that were set up, um, on a renewable basis. And when you're getting to a certain age that re when the renewal comes up, um, basically you're told, right, your premiums are either gonna increase by about 50% or your, some assures gonna reduce by a certain amount, which is usually quite a hefty drop, um, because of the fact that we're now renewing it and you're now this age. And, um, and that's a really difficult situation because as I say, it could be that, you know, with these people that it, it might be, I dunno that their premium could be going from, I dunno, let's say 300 pound a month up to 600 pound a month as a, as a rough example.

Kathryn:

I know that that's a much more than a 50% increase. Much, much more. So <laugh>, yeah, let's do 300 to 450 pound a month, there we go, 50% increase. Um, and they're going, but I don't, you know, this is too much. And, and I'll say, right, well if I was going to guarantee that summer show for you right now we're talking well over a thousand pounds per month because of the fact that we're guaranteeing it, it'll never change. That is obviously a huge step up from what they're potentially stepping up to already that they're not comfy with. But ultimately that other policy, it is just going to keep increasing, um, at the, at the renewals. Um, and there's quite a few people, you know, sort like who, you know, I think as you saying, people just aren't seeing them as value to money. So actually even though they've got this protection in place, which is amazing, they're just sending up canceling them cause they're just like, well it's just not worth it.

Kathryn:

Um, and uh, and that's a, a huge shame, but un unfortunately that does come down to, I think a lot of the time peop you know, people make choices that they want to make at a certain time. And as an advisor, I always think it's important to turn on and go, right, this is the price. If guaranteeing this right now, there's this one over here that's a lot cheaper, you know, I'm not gonna deny it's in existence. It is there, it is a lot cheaper, but there's this huge bundle of risk that's associated with it. And in terms of like the eventual premiums and everything. And I think that's a really key thing. But as you say, inheritance tax planning, joint life, second death, make sure as well, especially if we've got cohabiting people that we have trust in place, that is a huge, huge issue.

Kathryn:

Um, to a point of, you know, I do know some advisors who, you know, with certain things, especially certain life insurances, they will just, especially if they're co-habiting, they will just not put the policy in place unless there is a trust in place. They're just refuse to. Yeah. And you know, that's, you know, obviously to each advisor to their own on the way that we need to do that. Um, a big thing that I, my point of view is, is that there are some insurers who still require paper trust. I really advocate for them to change that. Um, and or at the very least to start to embed the payout planner on their internal systems, which really doesn't take that bigger change in terms of the technical side of the, uh, website. Um, people might think, what do you know about that? Well actually, I know I don't build an insurer's websites, but I do dabble a bit within websites and Alan is from a tech background, <laugh>, that was before he was an advisor.

Kathryn:

So I know it's not the end of the world to make an extra page on the application form to say here's a pay planner. Um, but I do appreciate in terms of the compliance side of things and the background, the Ts and Cs and all that kind, it's, it's much, much bigger than just a website. However, you know, it's, you know, there, there are many changes happening in that place that need to, but in also as well in terms of the online trust services, um, there are many insurers who have absolutely fantastic trust services. Um, you know, in, in terms of an insurer who isn't maybe getting a lot of online trust done with them or maybe they don't have the facility, you know, always happy for people to reach out and, you know, I can take them through a walkthrough without naming names, I can attempt to a walkthrough of systems that work very well.

Kathryn:

Um, and I'm sure they'll probably know of those anyway. But just on the off chance that they don't know what those systems are, um, you know, that there's certainly opportunity to listen, to advise and say, look, this is working well, this isn't working. Well have to say as well, there's summons show us online systems that for trust that are so awful that we actually revert to paper ones because even though as we all know, paper ones have a much, uh, lower return rate, um, than it was being able to just do it online there. And then it is an absolute nightmare, some of the online ones and it's just not worth it. <laugh>, it's, it's so much hassle and pain, um, that you just like, right. I'll just go paper.

Matt:

You do feedback to the insurers. I know it's a bit of a Yes. Yeah. I'm gonna say that's, that's pretty awful that

Kathryn:

Yeah, we, we do

Matt:

Feedback to them. It's intrinsic to financial planning. Yeah. I, uh, I I find it almost dereliction of duty not having a one that can be used. Doesn't have to be ultra slick, but at least one that could be used. So, um,

Kathryn:

Say as well in terms of trusts, you know, for, you know, all insurers that we would be, well the majority of insurers that we use have some kind of a trust facility. And so especially with those as well. I mean the payout plan, I understand that's a bit different. So people would need to get legal teams, compliance teams involved, but the trust that already there, they're already established. And again, it, it really doesn't take much to make a website system, you know, a few more pages. You know, I imagine I say this, I imagine that insurance companies have tech teams or they have to contract people in and that they're maybe not the cheapest of solutions. However, in the grand scheme of things, it really doesn't take much to add in a few pages and, and to get a trust in there. Um, I'm sure somebody would argue with me on that. So I can think of a mutual friend, Matt, who might argue with me on that situation. We won't name names but <laugh>,

Matt:

I don't, I don't think said individual would actually to go,

Kathryn:

Oh really? Oh, that's

Matt:

Good particular points. No, no,

Kathryn:

No. All I'll get brownie points for this episode then going, yes. I didn't get any feedback to say I was wrong.

Matt:

Brilliant. I love the pun.

Kathryn:

<laugh>. And in terms of gifting to Viv Os, can you explain what a gift to Viv Os policy does for Matt?

Matt:

Right. Inter vivos.

Kathryn:

Yes.

Matt:

Wonderful term, isn't it? And it's lovely, lovely to see that the insurance industry still too takes its policy Latin, sorry to names. Its policies after Latin.

Kathryn:

Yeah, absolutely.

Matt:

Do you know what iVOS means?

Kathryn:

I dunno. But I'm just gonna say planning. Cause as far as I'm concerned is gift plannings <laugh>. I just,

Matt:

Well, you know what? I couldn't remember when I thought, I thought this is the type of question that Catherine's gonna ask me.

Kathryn:

Yes. What's the Latin for this matter? <laugh>.

Matt:

So it, it actually means, I have to look this up by the way, cause I couldn't remember what it was. But it means if it, so gift interviews or gift made while alive iVOS while live or interviews can also mean between the living gift made between the living.

Kathryn:

Ah, interesting.

Matt:

So, um, kind of a pub quiz fact that's, uh, probably worthless to the, well vast majority of our listeners. But, um, so it does actually have a resonance, doesn't it really? It

Kathryn:

Does. I was thinking, I, I'll make sure that I am run anything as well past my, uh, Italian brother-in-law because it's so similar. Obviously there's so much rooted in Italian still. Yes. With Latin. I was thinking, I'm gonna say it from later, what does iVOS mean? Alberto? And see what he says to me. <laugh> <laugh>

Matt:

Probably from isn't said gentleman from Siia. Yes,

Kathryn:

Yes.

Matt:

Ah, well there you go. You'll know everything then.

Kathryn:

Oh, oh, I'm sure. I'm sure. Does he, he actually, cuz when we were came up with our named Kera, it was one of the things, it's, um, so in Latin Kera means to care and protect, which is the reason that we chose it. And um, and we were choosing a few different names and uh, we put it to, to him and he was just like, oh, well that one, it doesn't mean the same kind of care and protects, but Kira Yeah. That means to, to like, to nurture, to look after people. So yeah, that's the best one. Um, and I was just like, it was lovely that, um, that we, we got that thumbs up from a, a native speaker that we were going the right way.

Matt:

My God, that is amazing. <laugh>.

Kathryn:

So there we go. We're we're Latin too. <laugh>? Yes.

Matt:

Good. Goodness gracious. What, what can I say? So, sorry. We, we'll, um, gift I vivos policies. Okay. Now, um, as we've just talked about the, with the old Latin, um, these are are made while, uh, an individual is, is still alive. Um, and it's, it's it's gifting away part of your estate, the various exemptions, um, available, but I won't necessarily, I won't go into those today. Um, I think a lot of our listeners will be aware of the 325,000 and your 500,000 each on domestic residences, et cetera. Yeah. Um, but effectively if you want to give a, uh, something away and it is a substantial amount, then uh, you can protect yourself against the, uh, inevitable tax bill which arrives Yeah. Um,

Kathryn:

Uh, will protect the giftee.

Matt:

Yes, yes. Absolutely. Yeah. Um,

Kathryn:

So the person who receives the money

Matt:

Protecting them, they wouldn't have to pay any inheritance tax. Absolutely. Yeah. Um, sorry. They would have to pay inheritance tax, but the insurance policy mitigates that It

Kathryn:

Covers it, it, it gives them the money to, to be able to

Matt:

Do it. Money to pay, to pay it ab Absolutely. Um, now the, uh, in in typical style, the, uh, tax, um, on gifting lifetime gifts or potentially exempt transfers as they're often known pets Yes. Um, is, is rather complicated. I'm not quite entirely sure why it's complicated. Um, but it, but nevertheless it is, and effectively the tax is tapered and therefore the insurance policy molds itself around the inheritance tax that, that, uh, will become payable. Yeah. So therefore, basically, uh, as I say, most people hopefully will know that for the, the current rate of tax for um, uh, inheritance is 40%. Yeah. And therefore, um, on lifetime gifts, uh, the tapering of the amount of tax payable basically is if the gift, so it's the date of the gift mm-hmm. <affirmative> and you effectively in year seven to eight, the uh, you will no longer pay any inheritance tax.

Matt:

Okay. Yes. And that tapers throughout that duration, not completely, but it tapers. So in the first, um, three years, then you would be looking at having to pay 40%, three to four down to 32, and it decreases by 8% thereafter. So four to 5 24, 5 to 6 16 67. Eight seven to eight north. Yeah. Um, and A G I V policy is effectively as a a one policy, but it effectively is a series of term assurances, which will cover that specific liability throughout that, um, throughout the, the seven year term. Now these policies, G I V policies, again, when I was about lad, they used to be very, very common. Mm-hmm. Um, but G I V policies, so that combination of term assurances that specifically fit are quite rare these days. In fact, I think I only, I think I can only think of two insurers, mainstream insurers actually offer them.

Matt:

Yes. So what's happened, what's happened over the years is that, um, insurance insurers have realized that just, um, making le your traditional level term assurance available. Yeah. So in fact you would have five strokes, six policies. Yeah. All individual policies, not all, not all under one like A G I V policy. And, um, and they would tailor the, the, the duration of those policies in with the I H T liability that will, will become payable. Yeah. Um, and that is much more a common way than it is done these days. But nevertheless, G I V policies do exist. Do you have a, do you have a view on how you would advise on those different types of policies? My, under my understanding is that the level term assurance by individual policy is, is, is often the way forward these days as opposed to G I v. What, what, how do you see it, Catherine?

Kathryn:

I think it depends. As you say, there's only two mainstream insurer show us to offer the gift interview os policies. And in some ways it can be nice because it's just like, right. It's just one policy. It's just doing its thing. In a sense it's almost decreasing, decreasing cover in some ways because of the fact that it decreases at certain times. Um, but it is more, especially depending upon the risks of the individual, you know, it might be that you need to go somewhere else and then, and then what you can do is, so you would find out the gift amount. So let's say the gift's a hundred thousand, you'd then know that I h t was 40% for 40,000. So then you would be putting in place 40,000 pounds worth of, um, life insurance. Um, and as you say, Matt, you would do one for three years, four years, five years, six years, seven years. And each of those would have a value of 20% of the gift amount. Um, so I believe if I use the 40,000 option, I believe that means that it'd be, you'd have three years of 8,000, four years of 8,005 years, 8,006 years. Eight I think, I'm sure I've done that maths right. 20, no. Yes. 20%. Yeah.

Matt:

Know what you mean? Don't worry. Yeah, no,

Kathryn:

I've done it. Right. 20% is 8,000 here. So we'll do it that way. Um, and you can obviously have the benefit of LAN discounts, um, if you are able to use that or potentially, you know, not having to play menu plans, um, fees, um, if you were to, to do multiple ones all in one go, that one is that doing it that way in a sense is, is messier on the advisor's part because you've then got five different applications going forward. You've got five policy numbers. And I think the key thing with that is when you speak to a client, if, if you are needing to go down that way, it's just a turn and go this, you know, in some ways this could look messy and you're gonna have quite a few documents. But that's for me to sort, you know, I'm here to do the complex side of things and it's more, you know, in a sense it's more work for me.

Kathryn:

It's not more work for them, you know, for the clients at all really. Yeah. You know, and you should obviously then make sure that they know obviously all of them into trust. And a really interesting thing here as well is make sure, cause I had such an, I did a podcast about this, um, recently with, um, Ruth and Roy. Yeah. Um, and the difficulty that I had, I was explaining I had such a nightmare with these trusts. Cause I used to, I had to use three different insurers for the, um, gift planning and each in trust I had to do a different one with completely different name. So one of them would be one with one insurer, but the same name to trust with another insurer is completely the wrong choice for different reasons. But you want to make sure that, you know, it's in trust to the person, to the giftee, the person receiving it.

Kathryn:

But also make sure that whenever you are choosing your insurer, that you can use a trust that has the option for you to gift the terminal illness benefit also to the person who's received the money. Because that was one of the issues that I was seeing for some of the trusts was that had an automatic retainment of the gift, um, sorry, automatic retainment of terminal illness benefit, which is absolutely the wrong thing to do. Cause all you're gonna do is feed into the I H T liability. That's, that's likely there. Um, and then also you're not gonna be, that person isn't gonna get the money that they wanted. And ultimately, again, from an advice point of view, compliance point of view, that's gonna end up with a nasty complaint for yourself as an advisor. And that's not to, to scare people away from it. It's just to say, just make sure it isn't just a case of, oh this, you know, this insurer is the cheapest one, or Oh this is doing this over here or doing there and you know, they're the best one for risks. Yes, we need to take that into account. We must also double check that that end trust result is gonna be able to do what we need it to do.

Matt:

Yeah, the terminal honest one's incredibly good point. Yeah, yeah, yeah.

Kathryn:

It's a bit of a, it was, I was gonna say it was a barrel of laughs sorting that out, <laugh>. Um, it was not fun in the slightest because as well, obviously we have a team, so there's as advisors, as administrators as well, obviously our admin team do not and cannot advise on the trusts. But they will step in, they'll help prepare some of it in terms of some of the, um, filling in people's names, dates of birth and addresses and things like that. And, and with one of my team, bless her, she started going through it and she was just like, I'm not sure, but she was like, these have all got different names, I'm not sure what I'm looking at. And I was like, it's fine, I've, it's okay. And then she was just like, this one says this. And I was like, right, okay, that's not fine.

Kathryn:

And I get a different one <laugh> and you know, and we were just having to sense it all out. So again, if you are an advisor, if you do have administrative support or planner, power planner or anybody there, and I'm sure power planners will be very on top of this anyway, but um, just make sure that you are really seeing all those key bits. So, um, I think we're towards the end of the um, podcast Matt, and I'll just use a case study for somebody who had, was high net worth and had high net worth policies. So those large policies as well for us to talk about. And uh, for these people it was a couple, um, they uh, needed some joint, uh, insurance for their mortgage and then some individual insurances too for general family protection. Um, overall there were sort of, uh, like say, you know, there were early forties, um, there were non-smokers.

Kathryn:

There wasn't really anything in terms of, I was gonna say there wasn't really anything in terms of risks. And then I'll say this Matt, and you'll think, hmm, but maybe there was, so one of, one of them. Um, the female I've had experienced some, um, tiredness and slight tingling. So straight away my mind, possibly your mind as well is thinking, well hang on a minute. We've got someone early forties here, female getting some tingling. There needs to be some tests, make sure that we're ruling out things like multiple sclerosis, stuff like that. Has that been done? It's, that's what I'm thinking would be possibly thinking. She had had all the tests and everything, everything had come back normal. And essentially what it was, as we've said before, when people are high net worth, they're often in quite high position roles. And it was a case of needing to kind of step back and just take it a little bit steadier.

Kathryn:

So nothing, nothing too intense. Um, but uh, but they did have, um, three young children under the age of 10. So we needed to get some good, good insurances in place for them. Especially as well when we're looking at um, their, their income levels. And I think I heard one of my teams say this to me once and I, it really stopped, like it was interesting to me and she said, um, when she was learning and everything, she was like, she goes, but how come is it, how come somebody who's got that much income, why do they even need stuff like maybe income protection or um, you know, life insurance? Cause they've already got lots of money. And one of the things I'd said to her at the time is I was like, but that also means that the financial shock to them could be even more significant than somebody who is living right to their means, right to their budget.

Kathryn:

Because they're already there, they're already budgeting, they're already on top of things. Whereas people who are high net worth, often they are, you know, they're spending their money, they're enjoying life, you know, they're enjoying to the standard of living. So it could be a huge shock, huge shock to the family in different things. And, and bearing in mind as well, I'm not sure specifically about this couple that I'm speaking about, but quite a lot of time people might have, um, private school for the kids. So we're not just talking about, you know, protecting the home, we're also talking about protecting the children so that when there's already upheaval in their life from a loss of appearance, that they're not also having to lose their social network, their community, their usual routines, which could have, um, quite significant impact to them. Um, so for this one, um, we arrange 3.2 million joint, uh, level life insurance over 15 years to cover the mortgage. And that came to around 380 pounds per month. And then we also did increasing 1 million pounds worth each for family protection over 20 years, making sure that all the children were at an age of independence at that point. And that came in total to 150 pound per month for both policies. So that's the case study done, Matt.

Matt:

Excellent. Okay. I always think as well, one of the, one of the, one of the big sellers for, for the high net worth is that, um, it depends on whether you're still earning or not. Yes. But they will be, particularly you get older, tend to be very asset rich and cash poor. Yeah. And if, you know, if if something, um, untoward happened, then the only real way of creating cash is selling

Kathryn:

Yeah.

Matt:

To the asset rich cash poor. And that is certainly something you want to avoid. Absolutely. Um, for the whole raft of reasons. So I, I always think that's a big one as well. You know, it's the, it's the as asset rich cash poor type of scenario as say if you're earning Q3 hundred thousand a year, that's said of course if you suddenly cannot work again,

Kathryn:

<laugh>, that's a big,

Matt:

Big, again, that's a huge thing cause it takes the cash out, doesn't it? It's cash. What we live on, it's not necessarily on remortgage I suppose, but it's not something you wanna do at in later life.

Kathryn:

And you tend to find as well that from, from my experience with people who are earning quite a lot, as I say, is that, you know, they might, I dunno, let's say someone takes home 6,000 pounds a month, you know, just as a random figure. And probably a lot of people who aren't in that situation would think, how can you spend that much? And oh well if they couldn't work, you know that well, you know, it's, they've already had lots of money and it is just like, but you know, and how could you possibly spend that much each month? And what you'll find is for people who are quite hit at work, high net worth, there will be lots of things going on, which means that they are spending that much and you know, it will be a big shot to them in terms of their standard of living. It'll be, I say, a big shock to the family. It also means as well, especially if we are in that situation, they can well be full I FFAs involved in which point we're getting assets are being put into pensions. We'll be getting, being put into. Yeah. And that will stop. Um, so it's, you know, we do need to make sure,

Matt:

Let's be honest. Yeah, it's a huge can be,

Kathryn:

It can be massive, absolutely massive. But there we go. So I hope everybody's found this really interesting and thank you as always for your insights. Matt,

Matt:

Catherine, can I just interrupt you just for two seconds there? Sorry. We, we, um, we didn't actually get onto large case international business and Logan. Oh,

Kathryn:

Okay. Yeah, go for

Matt:

It. No, I don't, I think, I think, to be honest with you, that is a topic for another day.

Kathryn:

Okay. They'll have that for another day

Matt:

Then. Yeah, I would, I would say, um, let's use that for another day, or, or is a part of a discussion for another day. Cause I think it's, um, you know, it it it's certainly not a a a two minute discussion, let me put it that way. Is that okay?

Kathryn:

Yeah, no, absolutely. Cause I know that there'll be certain things, you know, there'll be certain things but involved won't they, in terms of like the health ratings I think for the countries that they're in, health indexes and everything like that. And, uh, maybe we can talk about America as well. Maybe we can do a little bit of demystifying about that. So, no, that sounds good. We'll, uh, pencil that in for the new year. Absolutely. Fantastic. So next time I'm gonna be back with Martin Stewart from London Money and he's gonna be talking about the current mortgage market and how protection insurance is now more vital than ever. If you'd like a reminder of the next episode, please drop me a message on social media. I'll visit the website, www dot practical hy from protection dot code uk. And don't forget that if you've listened to this as part of your work, you can claim a CPD certificate on the website too. Thanks to our sponsors, the Optum members. Thank you again, Matt.

Matt:

My pleasure.

Transcript Disclaimer:

Episodes of the Practical Protection Podcast include a transcript of the episode's audio. The text is the output of AI based transcribing from an audio recording. Although the transcription is largely accurate, in some cases it is incomplete or inaccurate due to inaudible passages or transcription errors and should not be treated as an authoritative record.

We often discuss health and medical conditions in relation to protection insurance and underwriting, always consult with a healthcare professional if you are concerned about any medical conditions and symptoms we have covered in any episode.