It’s never been more important to check your life insurance, critical illness, and income protection policies to make sure you have sufficient cover. This is because soaring inflation has eroded values and as a result any payouts made in the event of serious illness or death might not stretch far enough to cover some major expenses and outgoings.
The impact of high inflation on payouts
High inflation has resulted in higher prices, so if your policy wasn’t taken out recently, it needs reviewing to make sure it still provides adequate support for yourself and your loved ones. A new report by Which? gives an example – £100,000 worth of life cover taken out 10 years ago is worth around a third of its original value in today’s money, or less than half its original value for the same amount of cover bought 20 years ago.
What to check
If you have a life insurance policy, double-check what sort of policy you have and whether the lump sum payout will be enough to support your family’s needs.
Also, check any critical illness cover to make sure it’s sufficient. These policies are often taken out to pay for modifications to the home in the event of a serious illness or disability and the cost of those improvements is likely to have increased.
You should also review income protection policies if your outgoings such as mortgage payments, utility bills or childcare costs have increased.
How to keep up with rising prices
One option to guard against rising prices is to take out a policy with increasing cover. Some providers offer policies linked to inflation, while others have an option of a set increase each year.
A life insurance policy with £100,000 worth of cover that increases by 5% annually, for example, will rise to £155,132 after 10 years and £252,695 after 20 years.
However, you need to factor in the fact that your premium will likely also increase annually to reflect the increase in cover. However, this is usually only by a few pounds a month and the extra cost is worth it if it reduces the risk of being underinsured and the difficulties associated with that scenario.
If you later decide you want to cancel the annual increase, most insurers will let you do this.
Protection is for life
Having the right protection in place provides certainty in the most challenging times. Comparing the cost of protection from a range of insurers can help you to keep your costs to a minimum. We are ideally placed to help you do this. So, if you would like a review of your existing cover or you’re thinking about taking new protection, please contact us today to see how we can help.
As with all insurance policies, conditions and exclusions will apply.
Your home may be repossessed if you do not keep up repayments on your mortgage
