Interesting week. Phone call Thursday finds me back at my management consultants office where a pension scheme member wants income protection? Something odd here as the employers are more generous than average and Ulrica, my very efficient admin colleague confirms that PHI (Permanent Health Insurance) is included in the employee benefits package – 65% of salary payable after 3 months illness to age 65 so what is really needed here? Being in the West End anyway allows me to meet the client 90 minutes later and find out what he really wants.

First item is mortgage protection where he has a quote from Tesco.com at a very low price. More details are given but this is so cheap it is obviously for decreasing cover which the client confirms. Decreasing cover would be applicable to a repayment mortgage where the loan and the amount of life cover decrease over the mortgage term. Is decreasing cover best here when a move to a larger property maybe on the cards later on?  Further discussion here brings out personal details which will probably not not allow cover at standard rates. Problem with the cheapest insurers is that they will use practically any excuse to increase the premium &/or slap on an exclusion. If you fit the narrow market sector that they are aiming for then fine, but slightly outside these and they ain’t so cheap anymore or even worse you ain’t covered.

Mortgage protection is also required but again the personal circumstances suggest that a trust arrangement would be best so that any (death) claim can be paid out before Grant of Probate. The latter is applied for by an Executor if you have made a will, and an Administrator if you have not. With a life policy in trust, you and a partner for example, own the policy so the claim proceeds do not form part of your estate for Inheritance Tax (IHT) purposes possibly avoiding IHT altogether and usually speeding up payment. My suggestion that we look at the more practical Critical Illness protection too, is well received.

Last but not least from the meeting, client reveals that redundancy cover is the most pressing need. 27 people have been “let go” recently but under something called a Compromise Agreement?? Still awaiting full details here but it suggests that under the agreement, the employees are allowed to walk away from their jobs so they can say they were not pushed?? This type of agreement is new to me but my gut tells me that this will not be an allowable grounds for a redundancy claim where the termination of employment has to be involuntary.

Another example of the dangers of buying direct come from fellow www.brx.bondstreet.co.uk member Mike Nightingale of http://www.greenparkinsurance.co.uk who deals with general insurance. Dealt with the latter in one exam paper early in the nineties and been happy to leave it to others ever since. General Insurance cover is usually via annual contracts and invariably has something in the small print called General Average which is designed to protect the insurer rather than you the insured, against people under-insuring their valuables.

With a small claim this might not be an issue, but in the event of a major loss caused by say, flooding where carpets, flooring perhaps, electrics and all electric/electronic appliances ruined not to mention replastering, redecoration required plus say living with your family in a hotel for 4 months (has happened to one of my clients) could result in a huge claim. First person round will be a loss adjuster who as well as assessing your loss, will also report on what the amount of cover should have been. If you have insured for say, £50,000 contents and loss adjuster thinks you should have insured for £70,000 you will not get full £50,000 if there is a total loss of contents. You will get £35,714 where the calculation is £50,000 (your amount insured) x 50/70. This clause is standard in house contents insurance policies but is it mentioned when you go on-line? As ever, there is a difference between price and value and cheapest can often be terrible value. The fact this oversight or omission was innocent is not the point.

The other disadvantage of annual contracts is that the insurer does not have to renew them! Most memorable case of this was a few years ago in the foot and mouth crisis. On the front page, was the story of an elderly farming couple who had paid their insurance premiums for > 30 years but just as they were about to make a claim, the insurer withdrew from that type of business and they were unable to afford the monster premiums of the few insurers still in that market. Annual contracts are impossible to avoid with most general insurance contracts e.g. home or motor insurance, but easily avoidable if you are looking to provide some income or lump-sum protection for yourself, and usually much better value. The reason Permanent Health Insurance has Permanent in the name is the that the insurer is not allowed to stop offering that type of protection as long as you keep paying the premiums.

End of a busy day finds me at www.schneiderfx.com one of three FSA-registered FX brokers in town where I am reminded for the second time in < a week that 70 per cent of UK banks’ profits currently are from FX business! Schneider and indeed the other FX brokers work on a spread of about two per cent whereas the high street banks we love, work on 4 per cent plus. Anyone buying an overseas property for example, and paying for it via their own bank is chucking a few hundred quid at least out of the window. Schneider’s niche seems to be using market timing – something that is very dangerous for people in the equity markets but seems to work 90 per cent of the time in the FX markets.

If a foreign currency bill needs to be paid, and the counterparty can afford to wait 24 or 48 hours, then the buy or sell trade can be done when the price moves outside the daily average spread, saving the client here some useful cash. London is home to 40 per cent of worldwide FX business and in the window of a few hours when New York is open too, 70 per cent of the world’s FX business is done. Once London closes and Asian markets take over, rates can spike or move much more on thinner trade volumes. Schneider group’s annual business volume is US$75 trillion or US$75,000,000 million and have the largest non-bank dealing room in London. When at school, I had never heard of a trillion but now we read of them practically every week. Bottle of plonk to the first reader to spot the first mention of quadrillion (a thousand trillion) in the financial press – Zimbabwe with its runaway inflation excepted.

Have a good weekend.

Finally, apologies to readers who just got a heading and no text, when trying to read last week’s blog Financial Planning for People with Cancer http://www.georgeemsden.co.uk/2009/05/financial-planning-for-people-with-cancer/ Cause apparently, is compatibility problems as I use Mozilla as my main browser rather than Internet Explorer.