We are often quick to insure our homes, possessions, travels and even our pets but rarely do we think about insuring ourselves. Yet we all face the risk of illness within our lifetimes which could impact our ability to work and earn an income.
What is income protection?
Income protection cover is an insurance product which replaces part of your income should you become unable to work due to illness or accident. The product starts paying you a monthly income after a specified time (called the deferred period), and will continue to make these payments until either you return to work, your insurance comes to an end, or you die.
All income protection plans will have a definition of incapacity, which is how the insurance company assesses your illness and determines if you qualify for a claim on your policy. Typically this definition will be based on your ability to continue working in your current occupation.
For more detail on income protection insurance, how these policies work and what you should consider when taking out your own policy, please read our guide to income protection.
How to decide if you need income protection?
Income protection is one of the most underbought insurance products, despite it being arguably the most valuable. Often people don’t think they need income protection, whether that’s because they don’t think they will fall ill or they believe they could rely on state or employer support if they did become unable to work for any period of time. However, research by LV shows that someone in their mid-30s has a 45% chance of being off work sick long-term. Furthermore, any state benefits payable in the event of being off sick long-term would be insufficient to maintain most people’s standard of living. If your employer doesn't provide an income protection policy for its employees (most don't) and you have dependents then you should seriously consider arranging a policy yourself.
Before taking out income protection insurance you will have to make a number of decisions, such as:
• How much income protection do I need?
• What deferred period should I choose?
• What definition of incapacity do I want?
In the conclusion of this review I discuss the best way to answer these questions.
What is Vitality Income Protection Insurance and how does it work?
Vitality is an insurance company that takes an innovative approach to insurance by encouraging its customers to live a healthier lifestyle while offering huge discounts with major brands such as Apple and Virgin.
Depending on which type of Vitality income protection product you choose you could receive between 50% and 60% of your income, tax-free, if you were unable to work due to illness or an accident. In the event of a claim the monthly benefit will be paid for up to 2 years, or up to the end of the term of cover. You’ll also have access to a range of extra benefits that are built into your policy, designed to help you make a recovery and return to work (which is of course in Vitality's best interests).
There are three things that make Vitality income protection different to the other products available in the market:
Full earnings guarantee
This feature comes as standard with Vitality income protection. If you verify your earnings when you take out your policy Vitality will pay you a benefit amount based on your earnings when you applied for your policy, rather than your earnings at the time of claim.
Why is this innovative? If you fall ill you may choose to reduce your hours or change occupation before you eventually stop working altogether. This could mean that your earnings are reduced before the point that you actually claim. Most companies will base the amount they pay you on the level of your earnings just before you claim, so you could receive a lower level of benefit than you expected.
Permanent disability uplift
With Vitality’s comprehensive income protection you will receive an additional 10% increase to the monthly benefit amount if you become disabled and permanently unable to perform 3 activities of daily living (tasks such as washing and getting dressed). This feature is designed to give you additional financial support at a time when you really need it.
Healthy discounts and rewards
Vitality income protection comes with access to various discounts and rewards designed to help you have a healthier lifestyle. Whether that’s providing access to 40% off gym memberships or a heavily discounted Apple Watch to track activity, the company’s focus is to help customers to improve their health and reduce their chances of illness. The Vitality reward system also allows you earn up to 40% off flights with British Airways and even money off food shopping at Ocado. I personally have a Vitality Life Insurance product which I use to save over £1,000 a year as shown in my Vitality life insurance review.
How do Vitality wellness optimiser and Vitality optimiser work and do they impact the cost?
Vitality offers healthy living options, called Optimisers, which can be added to their income protection policies to make the cover more affordable.
Optimisers provide an upfront premium discount and the ability for customers to control how their premiums change over time depending on how healthily they live. For example, if you aren’t very healthy your premiums will increase by a set amount each year. However, if you engage with your policy, earn Vitality points and build your Vitality status (bronze, silver, gold and platinum) you premiums could actually reduce year on year.
Vitality offers two Optimisers:
Premiums are discounted upfront and then can change by between +2% and -1% each year, mainly depending on how active you are.
Premiums are more heavily discounted upfront but can change by between +4% and -1% each year, this time not only depending on your activity levels but also your overall health, such as BMI, blood pressure, blood glucose and cholesterol.
The Optimisers cost £3.80 per month if the starting premium is greater than £30 per month and £1.50 per month otherwise. If a client pays an extra £3.80 per month they will have access to all of the Vitality partners, such as Apple, British Airways, Starbucks. The £1.50 version only provides access to a limited range of Vitality partners.
What are the key features of Vitality income protection insurance?
Vitality income protection insurance offers three levels of cover:
Comprehensive income protection cover
This is the most extensive version of the product, offering the highest maximum benefit amount of up to 60% of your earnings. It also provides the most comprehensive recovery support, including access to up to £2,000 worth of rehabilitation services, designed to help you get back to work quicker. They also offer a Back to Work benefit which pays 50% of your benefit amount for your first month back at work to make the transition that bit easier.
Primary income protection cover
This is a cheaper version of Vitality income protection cover which pays a lower maximum benefit amount, up to 50% of your earnings, and provides reduced recovery support with access to up to £1,000 of rehabilitation services and access to 25% of your monthly benefit amount for your first month back at work.
Short term income protection cover
This product offers everything that Vitality primary income protection cover offers but only pays the monthly benefit for up to 2 years per cause of claim. This is the cheapest income protection insurance that Vitality offers.
Vitality offers two different definitions of incapacity; ‘own occupation definition’ or special definition’. The own occupation definition of incapacity is offered to people in lower risk jobs, such as office workers, and the policy pays out if the person insured becomes unable to do their normal job. For people in higher risk occupations, Vitality will offer their special definition of incapacity, which will pay out the benefit amount for the first 12 months if the person insured cannot do their normal job, and then after the first 12 months Vitality will measure the person’s incapacity against basic activities of daily living, only continuing to pay the full benefit amount if the person cannot complete three of the basic activities. If they are able to complete these activities but still can’t do their normal job, Vitality will half the benefit amount after this 12 month period.
All Vitality customers will receive a Vitality income protection key features document which will contain all the information they need to know in relation to their new policy.
Vitality also has an impressive payout record, having confirmed that it paid out on 94% of income protection claims in 2016.
What isn’t covered by Vitality income protection insurance cover as standard?
Vitality will cover most people for income protection insurance provided they’re in reasonable health when they apply for their policy. It also does not have any exclusions as standard on its policy unlike a number of other income protection insurers. For example, Zurich’s income protection policy does not cover HIV/AIDS or a claim connected with hazardous activities.
Where Vitality may not provide the best solution, is for people in higher-risk occupations.
The higher risk your job is, the more likely you are to claim on your policy and therefore the more expensive your insurance premiums will be. For certain risky occupations, it may even prove difficult to get income protection insurance at all.
If you’re in a higher risk job there are some specialist insurers which should be able to offer you income protection cover, where more mainstream companies like Vitality won’t.
It is therefore important to speak to an independent insurance adviser who has knowledge of the entire market and can recommend which income protection insurance policy suits your needs. In the conclusion of this review, below, I discuss this in my detail.
What extra options and benefits can be added to your Vitality Income Protection cover?
You can choose to add a number of different options or additional benefits to your Vitality income protection policy:
This option will ensure that the benefits from your income protection plan keep up with increases in the cost of living, and will increase by inflation (RPI).
Life and critical illness insurance cover
You may decide to add some life and/or critical illness insurance to your Vitality income protection policy, ensuring that you’re financially protected in a wider range of circumstances.
Optional serious illness cover for children
This additional benefit pays out a lump sum, up to £100,000, if your child develops a serious illness.
This Vitality benefit pays out one or more lump sums if you become disabled due to an accident or illness
You can add an Optimiser to your Vitality income protection insurance if you want to make your cover more affordable upfront and are comfortable to engage with your policy and live healthily to control your future premiums.
How soon after taking out cover do they start paying out if you need to make a claim?
If you make a claim on your Vitality income protection policy they will start paying you the monthly benefit after your chosen deferred period. Your deferred period can be typically anything from 4 weeks to 52 weeks. The longer your chosen deferred period, the cheaper your income protection premiums will be.
How much does Vitality Income protection cost?
Vitality income protection insurance can cost as little as £8 per month, but if you choose to add an Optimiser and want access to all of the Vitality reward partners, your starting premium needs to be greater than £30 per month, making a minimum of £33.80 including the monthly Optimiser fee.
Conclusion - does Vitality Income Protection offer the best cover at a competitive price?
Vitality income protection insurance provides a good solution if you’re fit and healthy or are keen to get more active and engage in a healthy lifestyle. The Wellness Optimisers offered by Vitality can help to make your income protection insurance more affordable, while also providing access to fantastic discounts and rewards designed to help you live a healthier lifestyle. As described in my Vitality Life insurance review, I managed to save over £1,000 in rewards in the first year of the policy and received £250 cashback. Vitality has an impressive payout rate, approving 94% of claims in 2016.
However, income protection insurance is quite a complicated product and there are lots of things to consider when researching the various products available. It’s for this reason that I’d recommend that you speak to an independent income protection adviser (not an adviser from Vitality as they can only advise on Vitality's products) who will be able to assess your needs and recommend the best income protection policy for you, whether that’s with Vitality or another insurance provider. Few independent protection advisers give whole of market advice and understand the Vitality product in order to tell you whether the latter is the best income protection policy for you. The insurance specialist who I used (can be contacted via this short form) will tell you whether Vitality income protection insurance will work for you without any form of pressure selling and also how to get the maximum from the product. I wouldn't recommend them unless the service had been excellent. Just put your contact details in the form and chose the time of day to have a quick chat. They can also advise you how much income protection you need, what deferred period to choose and what definition of incapacity to select.
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