CHRISISM #33 - Stepped vs Level Premium Trauma Cover

24 January 2017

Are you still recommending stepped premium Trauma Cover to your clients? I was too – until my lightbulb moment in 2007. To find out what my lightbulb moment was, read on..

For some 15 years between 1992 and 2007 I, like most advisers, was recommending stepped premiums to my clients for their Trauma Cover. After all, it was hard enough already to get clients to take out another product on top of their existing IP, Term & TPD cover without raising the bar even higher by increasing the upfront cost!

Then one day in 2007 I attended a 2 day Living Insurance Conference put on by The Risk Store out at Homebush in Sydney and one of the sessions on the first morning was to make a huge difference to myself, my consultancy and my clients in the most positive way possible.

The presenter of the session in question was a gentleman by the name of Nick Kirwan, who at the time was the head of the ABI (Association of British Insurers), and he was talking about Trauma Cover in the UK. He casually stated that in the UK 25% of the working population owned Trauma Cover. This completely blew me away as only approximately 2.5% of the working population owned Trauma Cover at that time in Australia! I thought maybe he’s got the decimal point in the wrong place, but I thought I’d better check it out.

So I caught up with Nick at the morning break and said:- “ That stat that you gave of 25% of the working population owning Trauma Cover in the UK – that’s pretty amazing given it’s only about 2.5% here in Australia. Tell me, what is the status of stepped vs level premiums when it comes to Trauma Cover in the UK?” And Nick looked at me as if I was from another planet and said:- “What’s a stepped premium?! It turned out that they didn’t have stepped premiums in the UK – in fact they didn’t even have level premiums as we know them. They only had guaranteed premiums i.e. once you had the cover in place, the premium was guaranteed not to increase for the life of the policy -  HUGE LIGHTBULB MOMENT!

I immediately thought to myself:- “Well, of course 25% of the working population in the UK own Trauma Cover, because everyone who bought it in their 30s and 40s have still got it in their 50s and 60s as they are still paying the same amount of money for it!

I realised that from that moment on I would have to be recommending level premiums as the preferred mode of premium payment to all of my future clients irrespective of age and furthermore I had to go back to all of my existing clients who were paying stepped premiums for their Trauma Cover and recommend that they switch to level premiums.

As far as the clients I took on after that 2007 lightbulb moment are concerned, the large majority of them own some or all their Trauma Cover on a sustainable basis i.e. level premium, and I’m proud to say that ALL of my existing clients at that time converted at least some (if not all) of their Trauma Cover to level premiums and how much they converted was only ever a matter of affordability, with many clients opting for a smaller sum assured that was sustainable to age 65 or 70 rather than a larger sum assured that they would have to give away in the short term due to its unaffordability. This was a choice that they made once I had explained to them the irresistible combination (see Chrisism#14 ).

For a more in depth look at my client engagement process around The Miracle Product, you will have to come along to my Risk Workshop in your capital city in July. If you would like to get details of this and other user pay workshops I am running in your state, just look out for the emails from my website.

My next workshops around the country will be my “Client Acquisition & Engagement Skills” workshops which will be in your capital city in March and you will get all the details next week. I hope to see you then.

The Risk Workshop by Chris Unwin

Are you a financial adviser who would like all of your clients to have appropriate types and levels of personal protection? But perhaps you feel you need a more structured and client friendly engagement process?