RPI Indexed Income Protection

720Pickle

I contacted a broker to get an Income Protection quote. I wanted 2.5K/month cover with guaranteed premiums that were linked to RPI.

The broker recommended the policy that had the lowest monthly costs, which seemed to make sense. However on reading through the Key Features it states that while the benefits go up in direct relationship with the RPI the premium goes up by 1.5 * the RPI.

On questioning this the broker gave me a quote from another insurer where the premiums started off £1 per month more but both the benefits and premium will go up directly by RPI.

I did some rough calculations and assuming that RPI was an average of 2% (realistically I expect it would be higher), over the 25 year term of the policy the first one would have cost around £2.5K more than the second policy.

I'm feeling quite !!!!ed off with the broker, and before I speak to them again wanted to get other people's opinion on whether this is justified.

Have I understood the RPI multiplexer correctly; and is a £72/month policy with 1*RPI premiums going to be cheaper than a £71/month policy with 1.5* RPI premiums?

Should the broker have have made this clear when they recommended the "cheapest" monthly cost?

If I am correct then obviously I should go with the slightly higher initial cost, however I still feel aggrieved that I was given bad advice. Should I complain about this, would this be something to raise with the FCA or is it accepted practice?

Thanks

Weighty1

You were NOT given bad advice.

The advice to index link the plan is appropriate in 90% of cases and the fact on how the premiums increase (RPI x1.5) was obviously explained in the Key Facts Document.

The fact that the cheapest option in the short-term can work out as being more expensive in the long term does not mean it is bad advice, it simply means the plans are indexed in different ways. And to be fair to the broker, most of the larger insurer increase the premium by RPI + an extra amount, whether that's 1.6, RPI +2.5 or some other calculation. The number of insurers only increasing the premium by RPI is limited to the Friendly Societies mainly.

SonOf

The broker recommended the policy that had the lowest monthly costs, which seemed to make sense. However on reading through the Key Features it states that while the benefits go up in direct relationship with the RPI the premium goes up by 1.5 * the RPI.

That is normal.

I'm feeling quite !!!!ed off with the broker, and before I speak to them again wanted to get other people's opinion on whether this is justified.

Yes it is justified.

Should the broker have have made this clear when they recommended the "cheapest" monthly cost?

Perhaps we should clarify the status of this "broker". If the broker is an adviser, then you get a higher level of disclosure and suitability checks. If its non-advised (as many of the online sites are) then you are responsible for picking. They just steer you on your criteria.

Can you clarify whether you are speaking with an IFA or whole of market protection adviser or someone of one of these non-advised internet sites?

would this be something to raise with the FCA

The FCA do not handle consumer complaints.

720Pickle

Hi both,

Thanks for the replies, I appreciate the help.

I got the quote through LifeSearch. My understanding was that I was getting advice, maybe I should have come on MSE first to get some help ;-).

If Friendly Societies are the only insurers that don't use a indexing multiplier is there any reason why I wouldn't want to insure through them?

Thanks,

SonOf

I got the quote through LifeSearch. My understanding was that I was getting advice, maybe I should have come on MSE first to get some help ;-).

They do both non-advised and advised.
With advised, you are asked questions about your personal circumstances and learn about you and then make recommendations based on that.
With non-advised, they get quotes based on the filters you tell them (or they can interpret).

If Friendly Societies are the only insurers that don't use a indexing multiplier is there any reason why I wouldn't want to insure through them?

More often than not, if you want the best income protection, you end up with a friendly society. Not 100% but more often than not.

Weighty1

720Pickle wrote: »

Hi both,

Thanks for the replies, I appreciate the help.

I got the quote through LifeSearch. My understanding was that I was getting advice, maybe I should have come on MSE first to get some help ;-).

If Friendly Societies are the only insurers that don't use a indexing multiplier is there any reason why I wouldn't want to insure through them?

Thanks,

Many friendly societies don't offer the additional benefits that larger PLC insurers offer. No friendly society offers hospitalisation benefit, they can't offer Global Treatment (Aviva only offering), they generally can't' offer life cover so if it was a multi benefit application you'd not get a small discount.

The biggest factor is that *most* friendlies only offer age banded premiums which increase in line with age as well as inflation meaning they are very expensive over time.

LifeSearch do offer advice, I know, I used to work for them many, many moons ago. However, the knowledge would always be dependent on the individual adviser, plus they working in a very very focused sales based environment. They can't be spending 2hrs discussing everything with a client.

Out of interest which insurer did they offer after you went back to them about the RPI x1.5 increase?