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With living costs continuing to rise and people’s purchasing power being eroded, it’s clear that futureproofing the value of protection cover has never been more important.
Despite efforts from the Bank of England to temper inflation, it remains stubbornly high, meaning consumers face the long-term prospect of higher prices and rising living costs.
When it comes to protection advice, the tool that we have at our disposal to help prevent our clients from seeing the value of their cover getting eroded by inflation is indexation. I would argue that this should be the default for every client looking to protect their own and their family’s future financial security.
Without indexation level cover is decreasing cover
Inflation of any level will erode the value of protection cover. Even with relatively low inflation of 3%, over 20 years the real value of £100,000 protection cover would be reduced to about £50,000. At current rates the impact is even more pronounced.
If protection advice is to remain relevant in the longer term, then indexation must surely be a serious consideration in every conversation where level Life, Serious Illness or Income Protection is being discussed.
It should be highlighted as well that with income protection cover, once in claim the client won’t be able to increase their cover even if they want to. So, with indexation included, the value of the client’s benefit payments will increase every year, for as long as they’re off work.
The value of this future insurability shouldn’t be under-estimated. The reality is that as we get older, we are more prone to developing medical conditions and potentially become less insurable.
Adding value to your advice and strengthening client relationships
Maintaining the long-term value of a recommendation is a simple and effective way of demonstrating the value of advice. With the new Consumer Duty rules, it’s also a way of ensuring good client outcomes and avoiding any potential foreseeable harm.
By including indexation in a recommendation, it also provides the opportunity for advisers to regularly touch base with clients at anniversary. This can be a chance to remind them of the value of your advice; that their cover and premium will be increasing and the reason why; and identify new needs and opportunities.
If they don’t want to increase the benefit and premium for that year, it’s also a chance to remind them that they can choose to keep their cover at the same level.
Find out how your clients can get up to two months’ premiums back with new qualifying health or life plans: https://adviser.vitality.co.