RECENTLY in Family Money, we highlighted the case of the M family from Dublin, long standing Homeservice, or "industrial branch" customers of Irish Life. In light of the lengthy Irish Life sales staff strike (which ended last week) we suggested that customers use the break in service as an opportunity to review their policies and to consider whether the high cost industrial branch service suited their circumstances.

As a follow up to the story of the M's, we asked a feebased financial adviser, Mr John Gilmartin of Gunn Robinson O'Higgins, to review their case and make alternative protection and savings recommendations.

We passed on his initial recommendations to Irish Life for their comments and received a response from Mr Denis Casey, head of the Homeservice.

Currently Mr and Mrs M and their 23 year old son, Sean (not his real name) are paying Irish Life nearly £90 a month (collected mainly on a weekly basis) for a series of policies for themselves and Sean's two sons, age 3 1/2 and two years respectively, who live nearby with their mother.

The policies concerned are a 10 year savings policy, costing £5 a week (£21.66 a month) taken out when Sean M left school. The policy includes £4,000 worth of life cover and paid out £1,000 in cash at year five (he paid in £1,300 by that stage). If current bonuses are maintained, it will pay another £1,696 in 2000, but is currently only worth about £380.

The M family were under the impression that this policy would pay out an additional £3,000 at year 10. (Irish Life says the documentation they received was "explicit" about the benefits of this plan.)

The second set of policies, at £2.50 each per week (£21.66 per month) were taken out by Sean when his two sons were born. The family wanted a small amount of life cover - "funeral insurance" they called it, because years earlier their young daughter had died and they had had been unable to pay for the funeral. But since life cover on small children is so uneconomic, Irish Life sold them two, 10 year savings plans with projected encashment values of £1,574 each, plus £2,000 worth of life cover.

When his second son was born, Sean, then aged 21 years, asked for more life insurance cover from the Homeservice agent. For another £2.50 a week (£10.83 per month) he was sold a 15 year life insurance policy with £15,000 worth of cover and an encashment value at the end of the term of approximately £900. On the direct debit system, the same £10 a month would have bought him in excess of £100,000 worth of insurance, but no encashment value.

Mr and Mrs M are the holders of an ordinary branch (as opposed to Homeservice) whole of life policy called Lifesaver, which was purchased in 1989, it is collected every three months by the Homeservice agent. Indexed at 5 per cent per year, it now costs £35 per month with life cover of £11,500 on each life.

Two years ago, Mrs M expressed her concern with the Homeservice agent about the rising premium. She claims there was no explanation about the effect of indexation, but was instead told that she was "owed" money on that policy.

An encashment form was produced, which was signed, and a short time later they received a cheque for £755 in the post. The M's assumed it was "interest or an overpayment", but in fact they had encashed the full value of the policy, something that should be avoided at all costs since these policies need at least 10 years to break even. Today, after seven years and at least £2,000 worth of contributions, their Lifesaver policy is worth just £425.

Mr Denis Casey of Irish Life Homeservice has vigorously defended his branch of the company on the grounds that it offers senior citizens and low income customers, for which "the level of bank account penetration is still quite low", a service where savings and insurance premiums can be as low as £2.50 a week.

Such customers "will simply not set aside small amounts on a regular basis without the support and discipline of a regular collection service. Many older customers place great value on the regular service call by their insurance agent without which they would have no access to insurance".

The M's, by the company's own definition of a Homeservice customer, were completely unsuitable candidates for this very high cost service. Though relatively low income - Mr M works part time as a carpenter, Mrs M is a part time child minder and Sean is an apprentice plasterer - each of the family members has long standing bank, building society or credit union accounts.

Though the M's are now in their late 40's, they are not senior citizens; Sean was just 16 years old when he purchased his first savings policy with the company. Their monthly premiums - nearly £90 - do not represent typical, low income insurance customers.

Mr John Gilmartin made a number of alternative recommendations. First, he suggested that Sean encash his savings policy, now worth £382 (plus life cover of £4,000) and the £15,000 life insurance policy which together costs him £32.49 a month.

In their place, he should take out, with his partner, a 20 year Friends Provident joint serious illness contract and two, 20 year Equitable Life term assurance contracts.

The Friends Provident contract will provide Sean and his partner with £36,000 each of life cover and serious illness protection; £15,000 worth of serious illness protection for each of the children plus £3,000 each death benefit.

The Equitable Life contracts will provide each of the parents with £70,000 Worth of death benefit. The total cost of the two policies is just £24 a month. Ironically, Irish Life sells both sets of policies under its ordinary branch range, though the premiums would be higher because both parents are smokers. As a matter of urgency they should each make a will and because they are not married seek legal advice regarding guardianship and a tax efficient trust for the children.

"What Sean needed when his children were born was a list of priorities. Top of the list should have been life cover for himself and his partner. Savings was secondary," says Mr Gilmartin.

"The savings policies Irish Life sold him for the children were inappropriate (a) because of his own low life cover, and (b) because they were not what the family asked for in the first place. They wanted `funeral' cover, but no one can make any money selling such tiny policies to infants, so they were sold savings policies instead, which happen to include £2,000 worth of cover.

"I originally thought that he should encash the childrens' policies, and put the cash value into a good Post Office savings account, into which he could continue to save. But when Irish Life supplied me with the early encashment value, after 33 months and 19 months of savings, it was obvious that the Post Office could not produce the kind of return Irish Life claims he will receive if current bonus rates are maintained i.e. about £1,570 each - at the end of the 10 years. If he can afford to, he should keep the policies in place." (Total investment in these policies after 10 years will be £2,600 for a projected return of £3,148).

Under Mr Gilmartin's plan, Sean's outgoings for the superior protection plans and the existing savings policies for his children is now approximately £45 a month, £9 less than he was paying the Homeservice agent.

The Lifesaver policy held by Sean's parents at £35 a month "represents very poor value", especially since the full encashment two years ago. I've looked at the wider picture," he explains, "and discovered that the M's have an outstanding corporation mortgage of £8,561 which they are paying off at £78 a month. It will be repaid in 18 years when Mr M is 69.

"I have recommended that the M's cancel the Lifesaver policy, which has a cash value of £425, and use that £34 a month towards paying off the mortgage early. By increasing the mortgage payment by £23 a month, from £78 to £101, they will pay off the loan nine years sooner, when Mr M is just 60 and save £3,500. For another £11.50 a month he can buy a 20 year, £20,000 term policy for himself from Equitable Life. The same cover for Mrs M will cost an additional £7.50 a month.

"Had he a pension policy, something the Irish Life salesman should have tried to sell him over the years, but never did, he could claim tax relief of 26 per cent of the premiums under Section 235A."

Because of the ongoing industrial relations dispute, Irish Life was unable to give an explanation for the encashment of the Lifesaver policy two years ago, but they point out that the encashment document the M's signed was clearly marked as such.

They defended the product on the grounds that it would continue to pay out the death benefits after age 70 (the age at which the Equitable Life policy expires) and wondered whether it was "sound advice to recommend a term plan which will have expired at the time when cover is most likely to be required". (It should be noted that life insurance cover is usually sold to protect dependants, especially children, and that it is unusual for pensioners over age 70 to carry anything other than small death benefits, unless they have sizeable assets they wish to protect from inheritance tax liabilities.)

In his response to Mr Gilmartin's recommendations, Mr Casey of Irish Life raises a very important issue - the question of advice.

"There is no such thing as free financial advice. Customers choose to pay for advice explicitly by engaging feebased advisers or implicitly by electing for products which remunerate the seller by commission.

"The type of consultation which you have arranged for the M family will typically cost between £100-£200 per consultation. We believe customers should have their financial affairs reviewed on an annual basis and our new process is designed to do so." (Mr Casey is referring to the new financial fact finding process that will need to be done before products are sold. Customers who have direct debit facilities will be serviced by ordinary branch agents, not Homeservice.)

"However, most customers would balk at the suggestion that they would have to pay a fee on this scale for this service annually. Our product pricing includes the cost of advice as well as the cost of servicing the business. To present our plans against non commission plans without highlighting the ongoing cost of financial advice would be totally misleading.

For Mr Gilmartin, this argument is indicative of the shortcomings of the Irish insurance regulatory system.

"Good advice is good advice. In the UK under the new FPC (Financial Planning Certificate) rules, financial advisers, regardless of whether they are employed directly by the company, are agents or independent brokers, must pass three different tests which cover subjects like social security benefits, tax of all kinds, borrowings including mortgages and pensions. They must be capable of doing an overall review of a person's financial position in order to give them the best advice.

"If the client's financial position is such that a Post Office savings account is more appropriate to them than a pension or a life assurance savings policy, then that is what they should recommend.

"If Irish Life intends to keep calling their sale representatives Personal Financial Advisers, then these are issues they should be trained to deal with. At the very least, customers should be told about the whole range of products a company has to offer."