Simplifying Life Insurance and Savings Products
Many people avoid purchasing items that are difficult to understand and use.
This mentality holds true with products, services, and even benefits such as life insurance.
The government recently called upon the financial services industry to offer some simple financial products that would encourage more UK residents to save money for the future. Topping this list were life insurance policies and savings accounts. The hope is that by having access to products that are less complicated, consumers will place a higher priority on saving.
Reducing the Complexity
After becoming concerned that the complexity of savings products was deterring consumers from saving, the Treasury appointed a steering committee to focus on creating simpler products. A Treasury-commissioned report outlined four policies and accounts that should be offered to UK residents.
It also detailed the standards that should be met by each one. The British Standards Institution will review the products and provide a kitemark to those that qualify, indicating that those products meet simplicity standards.
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In March 2014, the Treasury will conduct a marketplace review to determine whether providers are offering these simplified accounts. The first set of products due to the be released are three types of savings accounts and a life insurance product with a fixed term.
A regular, 30-day notice, and easy access savings account are included. The life policy is the kind consumers typically take to cover their mortgages in the event of death.
Product information will be straightforward and for the savings accounts, consistent so consumers can easily compare the offerings. A whole-of-life insurance policy is the next simplified product planned. The Association of British Insurers was asked to determine how a policy for income replacement could be incorporated into the list.
Benefits of Financial Management
Lloyds Banking Group former chief risk officer Carol Sergeant, steering committee leader, noted that effective financial management contributes to improved wellbeing and a higher quality of life. This holds true regardless of the income level of the individual.
Ms. Sergeant expressed hope that this initiative would remove confusion and complexity from understanding and comparing important financial products. Results of the review must now be used to create tangible changes in the marketplace.
Which? Executive Director Richard Lloyd welcomed the proposed changes, noting that providers should clearly state product charges and rates. He believes that consumers should not face multiple pages of conditions and terms when attempting to compare or purchase these products. Shopping around and getting a good deal should not be difficult processes, he said.
Though he agreed that the report contained useful suggestions, Building Societies Association head Adrian Coles believed that savings has recently been affected by other factors. He mentioned lower interest rates and the challenging economic climate in particular.
Ms. Sergeant agreed that to be successful, savings products must be affordable and meet the needs of consumers. She noted that insurance companies and banks have committed to deliver on the simplified products recommended in the report. Consumers who have avoided purchasing life insurance and savings products due to their complex nature should look for simplified alternatives coming soon.