60 is a magical age in the world of income protection insurance – for all the wrong reasons.
Because once you hit the big Six-O, there is far less choice among providers and the premiums you’ll pay make a big leap upwards.
Here’s a scenario we had recently for a client, who had just turned 60 and wanted to take out income protection insurance. His monthly premium was quoted at £288 for a £1,925 monthly benefit and, before he could claim, he would have to wait three months.
So was this particular person in poor health, or with an uncertain work future? Well, no. In fact, he was a busy plumber, in very good health, and a non-smoker. For this same policy – had he been 59 not 60 – the premiums would have been 40 per cent lower. Moreover – and, again, had he been 59 – there would have been a greater variety of providers and options to choose from, such as a two-year benefit term, something not generally available to those aged over 60.
We have noticed that on average premiums between the age of 59 and 60 are up to three times higher.
Why does income protection insurance go up at 60?
To answer this, we first need to look at what income protection insurance is. IP pays out benefits to policyholders who are incapacitated and so unable to work due to illness or accident.
Given that, as we get older, we are more likely to fall ill, it stands to reason that the premiums will go up.
What is less clear is why there is such a sudden, large hike for premiums between the age of 59 and 60.
This is even more confusing, when you look at it in the context of these statistics from Age UK:
- People are living longer – the number of people aged 60 or over is expected to pass the 20 million mark by 2030.
- By 2040, nearly one in four people in the UK (24.2 per cent) will be aged 65 or over.
- There has been a trend of people leaving the workforce (presumably for retirement) later. For men, the estimate of average age of withdrawal increased from 63.8 years in 2004 to 64.5 in 2009. For women, it increased from 61.2 years in 2004 to 62.0 years in 2009
- Today, over 1.87 million people aged 50+ work for themselves.
If we are living and working longer, it makes sense that at some stage insurers will look at income protection and try to even out the large step-up from 59 to 60. But, as we know, the insurance industry is a big ship to turn around and this isn’t likely to happen overnight.
So if you’ve not got income protection and your sixtieth birthday is looming, we would strongly advise you to consider acting sooner rather than later.
Even if 60 seems some way off and you feel fit and healthy, there is an argument for putting income protection cover in place while the premiums will be lower and you’ll be more likely to be accepted by the insurer.
And, of course, if you are already 60, all is not lost – we will help find you the best possible quote to suit your circumstances.
Categorised in: IFAs
This post was written by Melanie Dolphin