It is hard to disagree that for most clients their protection needs will not be solved by one product. Mortgage protection will pay off their mortgage in the event of death or critical illness, if included, but how will their family cope without their income? What if they are ill and unable to work? Could they cope financially without income protection? Menu Plans were created to help solve this problem, but what are the benefits and drawbacks of using such plans?
The menu plan was the brainchild of Roger Edwards and Nigel Bradshaw who helped Scottish Provident launch the Self Assurance menu proposition in May 1996. Whilst they offered some clear benefits to consumers and advisers, they were initially hard to compare.
Quotation portals did not initially have the capability to compare menu plans with a combination of single benefit plans. As such advisers looking to understand the relative costs needed to run a comparison via their quote portal for each benefit type and then visit insurer extranets to compare the menu plan costs. This was clearly inefficient and the introduction of multi-benefit and multi-product comparisons via systems such as iPipeline’s SolutionBuilder, Iress’s the Exchange and Synaptic’s Webline have made this far easier.
It took two years for another insurer to replicate the Scottish Provident proposition when Guardian (Royal Exchange) launched a competitor in 1998. In today’s market most insurers now offer a menu plan proposition however the range of products available within these differ between insurers.
*AIG’s Instant Life plan is not included in their menu plan options
**Royal London’s Diabetes Life Cover is not included in their menu plan options
Do not offer – This means the insurer does not offer this type of product
Where several different cover types are required, a menu plan can offer some real benefits to both the client and adviser. These include:
- Mix & Matching – Plans can be mixed and matched to meet the clients’ needs and taking full advantage of the benefits of two single life plans as a posed to a joint life plan. Each plan can be set up with a different start date so that each cover can start on the date that the risk or liability begins which is particularly useful for mortgage related plans.
- Easier Application – Applying for multiple product types within a menu plan means that only one application needs to be submitted. As such only one question set needs to be completed removing the complication of slightly different questions being asked on the same subject by different insurers.
- Easier underwriting – Where a client may need medical underwriting there will only be one request for information. If a GP report is required there will only be one request and if a medical is required there will be less delays as the results will not need to be shared across insurers.
- Less administration – From the client’s perspective it will be easier to keep track of their insurance as it is held with one insurer and usually under one direct debit. For advisers it will be easier to obtain information and inform the insurer if any changes are required.
- Potentially easier at claim – If a client was to suffer from an illness or injury that might trigger both a critical illness and income protection claim, they would only need to deal with one insurer. This may also make it easier for the insurer to intervene and offer additional services at an earlier stage specifically with income protection where the benefit will not be paid until the end of the deferred period.
- Cost – Some insurers offer discounts on their menu plans which are often based on the number of products selected. This could potentially reduce the overall cost of cover for the client.
In terms of the costs, there are a number of different approaches to the discounts offered. Currently Aviva and Old Mutual Wealth do not offer a discount. From the other insurers the most common approach is to apply a fixed monetary discount per product included in the plan. The table below, highlights the insurers that take this stance and the discount offered.
For other insurers the discount is slightly more complicated relying on more factors than just the number of products included:
- Guardian – The discount applied by Guardian is calculated by an algorithm that takes into account the sum assured, customer age and policy term and will therefore vary based on these factors.
- Scottish Widows – The discount is a factor applied to premiums which is not explicitly shown but included in the price quoted.
- Vitality – The discount is applied in any scenario where income protection is selected with another ‘core’ product, life or serious illness. The income protection component will therefore be cheaper when selected with life or serious illness. This is applied directly through the underlying price of income protection and isn’t ‘visible’.
As with all things protection, menu plans are not going to be suitable for every client. This is particularly the case where a client has a medical history that may lead to a rating. Whilst one insurer may offer good rates for certain conditions on life cover, they may not offer as favorably on critical illness or income protection. As such clients may achieve better rates elsewhere in the market. Alternatively, if income protection is being recommended those that favour menu plans, the adviser will be automatically discounting the friendly societies that only offer such products. It may also be the case that the chosen insurer has a comprehensive critical illness policy but less comprehensive income protection plan (or vice versa) and as such advisers may be compromising on quality by selecting a menu plan.
Menu plans clearly offer many benefits and for a lot of clients will make a lot of sense. In many ways they make it easier to put multiple products in force and importantly to maintain the cover, and as such should be a serious consideration in the right circumstances. Overall Aviva and Vitality have strong propositions as all personal products can be included within their menu plans, whilst of those that disclose their discounts Royal London and Zurich seem to offer the biggest discounts.