Beware of Vitality Income Protection
Warren Robins
The Income Protection Specialist for Dentists & Doctors – Revealing the true long-term cost of income protection, hidden by insurers, and showing how to make big savings.
In my opinion, income protection is the best illness cover available, paying out if you can’t do your regular work duties, with no conditions or fine print to qualify for a claim.
But beware, buying income protection is rather like buying a puppy, as both are for the long term, and depending on the type you buy, the long-term costs vary dramatically.
It is well known that it is normal for the cover amount to increase annually, to protect against cost of living increases but what is rarely understood, is that the impact of this on premiums, varies greatly between insurers and is hidden on most insurer illustrations.
The cost of living measurement used by most insurers is the Retail Price Index, which averages around 2.8% long-term*. A 2.8% increase in cover, can cause the premiums to increase by over 11%, depending on the formula used by the insurer and your age. These annual increases are compound interest, which Albert Einstein called “The most powerful force in the universe” so have a dramatic impact on the long-term cost of income protection, which can be illustrated using Vitality and another insurer.
The most common formula used by insurers is 1.5x cover increase, so a 2.8% cover increase means premiums increase by 4.2%. The same increase with a Vitality policy, Optimised and the most common Silver status, gives a premium increase of 7%. That difference might not sound significant but this is “The most powerful force in the universe” in action.
Using a real example: 30yr old non-smoker, ￡3,000 cover with 1 month deferred to age 65, index linked, guaranteed premiums, gives the following results, at 22/1/22.
Example 1.5x insurer:???
领英推荐
Vitality Optimised:????????
At least with puppies, the size of their paws gives you a clue to how big they will get. No such clues with income protection premiums, not even on the insurer illustrations. Both insurer illustrations assume the cost of living increases at 0%, so give unrealistically low total costs.
To see a more detailed analysis of how Vitality apply their indexation increases, please visit my blog on the subject at https://www.medidentfs.co.uk/beware-of-vitality-income-protection/
If you want to know how much you could save by switching your income protection policy, get in touch, for a no obligation comparison.
[email protected] / 07977 093361
* Office of National Statistics Retail Price Index, 30 year average.