When Vitality’s serious illness cover expires, 50% of the remaining benefit is now transferred automatically onto a new policy to cover care and illness in later life. This helps tackle the issue of social care, and makes use of premiums that customers have already paid and would otherwise not get back.
The world’s population is ageing, which is calling into question how care in later life will be funded.
Globally the population aged 60 or above is growing at a rate of about 3% per annum according to the United Nations. In the UK, over-65s account for 22.3% of adults as of 2018, which is forecast to rise to 30.2% by 2050 according to the ONS.
Pressure is already high on the UK government, with media coverage surrounding strain on the NHS and other areas of public funding, not to mention the potential impacts of Brexit. With the UK’s ageing population, responsibility for social care funding needs to move towards individuals.
Vitality social care steps in
A potential solution to social care funding suggested by former pensions minister Steve Webb was to develop a new type of insurance product that would cover the costs of care in later life. It would be sold as an add-on to pension drawdown, and be paid directly from the policyholder’s pension pot.
However any such product is yet to be developed, as to be viable insurers would need to work with the government to allow premiums to be paid directly from pension pots tax-free. The government has already delayed pivotal legislation such as the Civil Liability Bill, and so collaboration on new legislation such as this is unlikely at present.
In light of this Vitality Life has sought to tackle social care funding through insurance instead, by updating its serious illness policy. When the customer’s serious illness term policy ends, 50% of the remaining benefit is automatically transferred onto a new policy called ‘Dementia and FrailCare Cover’ at no extra cost. The cover aims to protect individuals against the rising cost of social care in later life and to provide protection for a range of degenerative illnesses.
Vitality’s move to provide a new policy that makes use of premiums from existing serious illness insurance will be attractive to customers. It turns the original policy into a whole-of-life benefit, where individuals will receive a pay-out even after their serious illness cover expires. Customers won’t feel as though paying premiums for their serious illness cover will have been wasted if they don’t need to claim during the policy term. It also means customers do not need to purchase an additional care policy, as protection insurance can often be a begrudging purchase.
There is an overall benefit cap of £100,000 for Vitality’s Dementia and FrailCare Cover. While it has been criticised that this will not cover all costs in later life, it is expected to be able to cover the average stay in a residential care home.
According to a study by Independent Age, on average, older people stay in a residential care home for 30 months, at an average cost of approximately £32,000 per person for the first year, and increasing over subsequent years, coming to a total of around £82,000 over two and a half years.
More insurers should look to develop propositions to tackle the issue of social care.
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