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Smooth out premium payments with a level term policy

With the low interest rates currently available, you may find yourself with a little something extra in your budget. To get the most out of it, this could be the perfect time to consider getting a level term cover policy for your life insurance.

There are two ways you can set up your life insurance cover. While the cover you receive is the same, the way the payments are set up – and how much you pay over the long term – can differ. It is definitely worth learning more and considering your options.

What is a Yearly Renewable Term (YRT)?

Also called a Stepped Premium, this is the most common set up, and represents the vast majority of all life insurance policies. The premiums increase every year, due to both inflation and as the policy holder becomes more of a risk to the insurer. Of course, your sum insured will also increase each year, protecting it from inflation.

The advantage having a YRT is that upfront, when you first get the policy, you are paying the cheapest premiums. As many people first get life insurance along with a mortgage or a child, price is an important factor. The downside is that it just keeps going up, which can lead to people reducing or abandoning their policy – and then not having cover when they need it the most.

What is a Level Term?

With a level term policy, you have the same type and level of cover as a YRT policy, however the way you pay your premiums is different.

The premiums are locked in, and you pay the same monthly premium for the term of the cover.

The insurer is committed to providing you with the policy for the same premium for the fixed term. This doesn’t mean you are locked into that policy, however if you break it you will lose the cost saving advantages of the level term.

Level term policies generally don’t have the inflation increase options that YRT policies do (although some offer fixed indexation, generally 2% per year).  Considering a level term policy means being open to taking a long term financial view.

So how does a YRT policy compare with Level Term policy?

With a fixed term policy your very first premium will be roughly double what you would be paying for your first premium on a YRT policy. However, as the infographic below shows, over the term of the policy you are looking at saving a significant amount of money.

In the past it may have made sense to reduce cover as you got older and life circumstances changed. However, many people are having children later, those children are living at home longer, and with the increase in house prices people are paying off mortgages for longer.  And it isn’t just life cover – trauma cover is often tied in with life cover and with constant medical advances we are surviving medical trauma that we may not have previously, meaning we’ll be wanting that cover for longer.

Most insurers offer level term option alongside the YRT option but some may have exceptions in the fine print as to when they may raise the premium, which is just another reason it is always worth talking to your adviser as they know all the ins and outs of the different policies.

If the concept of a level term appeals but you are not sure about having all your cover locked in at the same level for an extended term, you can have a bit of both in the same policy. Setting a baseline of level cover, and then the rest as YRT gives you flexibility when circumstances change and you may wish to change your level of cover. This is an area where having an adviser to talk to can make a big difference to having the policy and cover that is right for you.

If you think a Level Term policy might be right for you, or just want to know more about how it all works get in touch with one of our advisers today.

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Meeting an adviser? How to get the most out of your meeting

When you work with an adviser to get the right insurance in place, we want it to be as easy and accessible as possible. This might mean we come to your place after hours, or that you come to our office – part of what makes working with an adviser so great is our flexibility. If you want to know how to prepare for meeting an insurance adviser there are a few things you can do to get the most out of the meeting, whether you are looking for life insurance, income insurance, trauma protection or just some good insurance advice.

Allow enough time

If you know exactly what you want, half an hour may be okay. However if you are using an adviser because you want to draw on their expertise and experience, you need to allow enough time to for them to get a good understanding of your current situation and how you see your life changing in the future. It is best if neither party feels rushed.

Be open with your disclosure

Disclosure is a key part of making sure we choose the right policy and making sure you really are covered when you come to claim.

Don’t hold back because you are concerned you won’t get cover – chances are it would come out when you try to make a claim and it could be denied. There are lots of different providers and policies available, and when we know the full picture we can choose the best provider, policy or combination of policies to get the most comprehensive cover for your circumstances.

Give us your full attention

Life is busy – and it can be hard to fit everything in. However, if we have a meeting together you need to be able to give us your full attention. You may find insurance boring, but it is important!

This means make sure the kids are in bed, turn the TV off, and put your phone on silent. This is a professional meeting, and even if it is at your kitchen table it needs to be treated as such – otherwise you may miss key information or forget to tell us something critical.

Be prepared

There are a few things you can have ready before we arrive. If you have existing policies, have those details ready for us. Having your personal income details or business accounts ready is good, as is a clear idea of your own medical history and that of your family.

Ask lots of questions

We absolutely love it when you ask questions and are open to learning more! This gives us a great idea of what you already know and what is important to you. We know our stuff inside and out, but we don’t expect you to, so there really are no dumb questions.

Make sure you can both be there

Whether you are getting insurance along with your partner in life or your partner in business, it makes sense for you both to be available, especially for our initial meeting. We need to know what is important to both of you, and we need to know about you as individuals.

After the meeting

After we have met with you, we may need more information or official documentation. Following up on this promptly and partnering with us to chase up third parties, such as your doctor, makes a big difference to how quickly we can get your cover in place.

Relax, we are a team

Lastly, remember that your adviser is on your side.

We are not there to sell you something you don’t want or need, we are there to work with you to put together a plan for your future. It is not about a particular insurance product, it is about the outcome for you if something goes wrong, and insurance is just one of the tools we use to get the best outcome for you. That is why we will likely talk to you about wills, trusts and enduring power of attorney as well.

Are you ready to get an insurance adviser on your team? Get in touch with one of our advisers today.

Prepare for your meeting with an adviser

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What should you do when income protection premiums rise?

With the nature of insurance underwriting and risk trends, as you get older your insurance premiums will rise. This is as true for income protection as any other type of insurance, but has the added complication of the cover  automatically being cancelled when you reach age 65*.

So when you are in your early 60s and nearing retirement, your premiums are rising and your  pay-out period is increasingly limited, what do you do?

It can be tempting to cancel the cover and hope for the best, reduce your sum insured, or extend your wait period (the period before the cover starts to pay-out, usually 4, 8, 13 or 26 weeks), however this may not be your best option.

What are the issues?

If you are paying higher premiums but have extended your wait period or reduced your sum insured the value you get back in a claim continues to diminish.

If you are unable to work because of an accident you will be covered by ACC, regardless of your Income Protection sum insured or stand down period. This tends to mean that Income Protection can sometimes be redundant when ACC cover is helping, because most Income Protection policies are subject to offsets.

However, if you are unable to work because of an illness, this is where Income Cover helps – but you will only get a pay-out if you are off longer than your wait period – if that is four weeks and you are off work for five weeks you may only get one week paid out. So in a scenario where you are having to extend the wait period to keep premiums down, and are having to consider eight or 13 weeks before receiving benefits, alternative options can be considered.

In these scenarios, consider this: Given that ACC is there for accidents, your Income Cover becomes more about covering illnesses. If you have a long wait period such as 13 weeks, then the Income Cover only becomes effective in scenarios where an illness takes you out of action for more than three months. In most cases (although not all), these illnesses are likely to be conditions that are covered by trauma cover, such as cancer, heart attacks, strokes and so on.

How trauma cover can create a solution

For clients in this position we often recommend they consider trauma cover.

There are a number of reasons for this:

  • The entry rate of the premiums is lower
  • The pay-out is paid on the basis of a diagnosis, not on your ability to work
  • The benefit is paid as a lump sum so is paid out up front, without a wait period
  • You can use the pay-out however you see fit, it is not restricted in its use. It can be used to extinguish debt in one go, or support you as replacement income for an extended amount of time

So how could this work?

Let’s look at Andrew, a, 63-year-old lawyer. We’ve changed the name, but the figures are from a real client.

Andrew has income protection, with cover of $15,906 per month. He would get half paid out after an eight week wait, and the remaining half after a 13 week wait, but both only have a three month claim benefit. His premium is $223.67 per month.

This cover is mostly offset by any ACC payments available, so would only help by topping up ACC if Andrew can’t work because of an accident, only an illness.

The three month benefit period means he’ll only be paid for three months after his wait period (if he were off for that long) meaning his total potential benefit is just $47,718 – and he would need to be unable to work for a total of six months to receive that.

For a similar premium, $243.74 per month, he is eligible for $100,000 of accelerated trauma cover. This gives him more than twice the pay-out benefit, with no wait period and no requirement for time off work, as an up front, lump sum payment.

In addition to this, his income cover is going to expire at age 65, so the policy he currently has will cancel in two years. Trauma cover can be continued for life – so at this stage of his life and career with all the information available, Andrew may decide it is a much better use of his premiums.

The one downside we would make sure he was aware of is that the trauma cover has a list of specified conditions, whereas income protection is more of a catch all. However the list is extensive, and they tend to be the most common conditions.

What you need to know

You can have stand-alone trauma cover until age 70, however accelerated or linked-to-life cover you can have for life. Because you can have trauma cover for longer, you can get it on a level premium plan, so you know what it will be as a fixed expense which is great for budgeting in retirement.

Different types of insurance are better placed to meet your needs at different stages of life. Trauma cover is not superior to income protection and depending on where you are in your life or career, the best option is often to have both.

All types of insurance have upsides and downsides, and we want to empower our clients to make informed decisions.

It is always best to discuss your options with your adviser, they know the different types of insurance cover available, how to set them up to get the most out of them and what is going to suit you at different stages of your life and career.

 

*some providers offer “to age 70” options at an additional premium

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Why you should consider a Level Term life policy

Did you know there are two different ways of setting up your life insurance cover? While the cover you receive is the same, the way the payments are set up – and how much you pay over the long term – can differ. It is worth learning more and considering your options.

What is a Yearly Renewable Term (YRT)?

Also called a Stepped Premium, this is the most common set up, and represents over 90 % of all life insurance policies. The premiums increase every year, due to both inflation and as the policy holder becomes more of a risk to the insurer. Of course your sum insured will also increase each year, protecting it from inflation.

The advantage having a YRT is that upfront, when you first get the policy, you are paying the cheapest premiums. As many people first get life insurance along with a mortgage or a child, price is an important factor. The downside is that it just keeps going up, which can lead to people reducing or abandoning their policy – and then not having cover when they need it the most.

Banks and other online insurance providers will often draw clients in with a great offer, such as 20% off premiums for a set period of time. If you are looking at getting a policy with a stepped premium it is highly likely that after that period of time is over the premiums will rise very quickly. And it isn’t advisable to chop and change policies every few years.

What is a Level Term?

With a level term policy you have the same type and level of cover as a YRT policy, just the way in which you pay your premiums differs.

The premiums are locked in, and you pay the same monthly premium for the term of the cover.

The insurer is committed to providing you with the policy for that premium for the fixed term – however you are not locked into that policy, though breaking it loses you the cost saving advantages of the level term.

Level term policies generally don’t have the inflation increase options that YRT policies do (although some offer fixed indexation, generally 2% per year).  Considering a level term policy means being open to taking a long term financial view.

So how does a YRT policy compare with Level Term policy?

With a fixed term policy your very first premium will be roughly double what you would be paying for your first premium on a YRT policy. However, as the infographic below shows, over the term of the policy you are looking at saving a significant amount of money.

Level term cover infographic

While in the past it may have made sense to reduce your cover as you got older and life circumstances changed, these days we are having children later – and they are living at home for longer – and with the increase in house prices we are paying off mortgages for longer.  And it isn’t just life cover – trauma cover is often tied in with life cover and with constant medical advances we are surviving medical trauma that we may not have previously, meaning we’ll be wanting that cover for longer.

Most insurers offer level term option alongside the YRT option but some may have exceptions in the fine print as to when they may raise the premium, which is just another reason it is always worth talking to your broker who knows all the ins and outs of the different policies.

If the concept of a level term appeals but you are not sure about having all your cover locked in at the same level for an extended term, it is worth considering having a bit of both in the same policy.  Setting a baseline of level cover, and then the rest as YRT gives you flexibility when circumstances change and more or less cover may be needed. This is an area where having a broker to talk to can make a big difference to having the policy and cover that is right for you.

If you think a Level Term policy might be right for you, or just want to know more about how it all works get in touch with one of our brokers today.

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