If you even have a very vague idea that you will need life cover past the age of 45, you need to have your premiums on a level basis.
Why … so you don’t cancel the covers when you may really need them.
I am constantly approached by clients who no longer can afford to have their insurance covers in place and still have the need for them. Either they still have debt that would need to be paid off, they have children that continue to need financial assistance or they are no longer earning the level of income they previously did. (Second and third marriages often necessitate needing cover for longer than anticipated.)
Here’s how level premiums work: the premium for life insurance cover is generally guaranteed not to alter. So the life company enters into a contract with you that, until a specified age, the premiums will not increase. You may be able to select the term for this depending upon the insurer. Some let you select a specific age, others keep the premiums constant to age 65, 70 or 80.
For other insurance covers, including trauma and income protection, the premiums are level but not guaranteed. As such, if the insurer makes a loss on the product they can alter the overall pricing of everyone with that contract. This does happen, however as the insurer has a much better retention with level covers and hence can be assured of having the business on the books longer, these increases are generally lower than ‘no level’ or “stepped” products.
You can also buy guaranteed level trauma and income covers from Fidelity Life. These do not alter overtime in price.
So what’s the catch? The catch is that if you don’t need the covers and you cancel them. You will pay more in the first seven to 10 years but the benefit comes as you and the policies mature.
Level premiums are then the way to go if you want certainty as to the cost of your insurance and expect to need cover longer; as most of us do.
So let’s get everyone on level and make sure your life covers stays in place for as long as you need it.
If you would like to discuss your insurance cover, please make contact with me or any member of the Plus4 Insurance Solutions.
Grant Uridge is chairman of Plus4 Insurance Solutions, a national insurance broking and financial adviser group.
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