Are you selling your clients short? With inflation firmly back on the economic agenda, will the life protection you provide clients today fully deliver on their expectations tomorrow?
Let’s say you sell your client £100,000 of Whole of Life cover today. In 20 years’ time that’s the sort of buying power your client would still expect. But in reality, it could only be worth just over half that amount[1].
The culprit is inflation. Retail Price Inflation has remained around 3% for the last three years, where it is expected to remain for the coming years[2]. Even if we follow longer term trends, Retail Price Inflation rate has still averaged 2.58% a year since 1989[3], more than enough to make a dent in your client’s cover. We owe it to our clients to start factoring in an element of forward planning to protect future value, and that element is indexation.
A key advantage of indexation is protected value: at the point of paying out, your client can have the absolute knowledge of knowing their buying power remains intact. In the case of Whole of Life cover, indexation makes sense for clients as they get older, as their mortality and morbidity risk increases, it becomes harder to get top-up protection later in life. Indexation avoids this need, and clients also don’t need to undergo additional medical underwriting.
There’s a cost implication in adding indexation. In the case of Vitality’s Whole of Life cover, the rise in premiums can be offset by upfront discounts of up to 64% when taken with Wellness Optimiser and up to 46% when taken with Vitality Optimiser – providing the option to keep premiums low over the long term.
Our indexation option is also flexible. Your client can decline increases in cover at any time but we do ask that they accept at least one increase in cover every three years. After three consecutive declines, Indexation is removed and their benefit converts to level.
Finally it can also benefit the adviser’s reputation, for having taken a responsible long-term view of your clients’ interests. This can help build a positive client-relationship, bringing the opportunity to grow and protect stable long-term revenue streams, not to mention increased commission.
Clients will understandably highlight the difference in affordability between indexed and non-indexed plans. At a time when the outlook for inflation is uncertain, can they afford not to have it, and you not to recommend it?
