Should you have Guaranteed or Reviewable
Premiums for Life Insurance?
Term Life Insurance and
Critical Illness Insurance can either be
on a Guaranteed basis or a Reviewable
premium basis. The terms relate to the
monthly premium. Life insurance
companies monitor claim rates and if
claims are higher than the expected they
will need to increase their premiums to
ensure they continue to make a profit.
One way the look to do this is by having
reviewable premiums. Normally every five
years the company will review the
premiums if you haven't taken the
guaranteed option. Depending on claims
statistics the premium may go up or
down.
When you set the policy up the insurer
will sometimes give 2 prices. The lower
being the reviewable option and the
higher being the guaranteed option. If
the quote was just for life insurance
and the policyholder is quite young
anyway then the difference is sometimes
very small or even the same. However if
you are covering critical illness
insurance and the policyholder is older
or has a longer term on the cover then
the difference can be larger. Typical
differences are shown in the table
below.
As you can see the difference is
substantial. Although this was for
critical illness cover and the
difference is larger than that of life
only normally.
Critical Illness Cover is still
relatively new for insurers and thus
they need to review premiums more than
that of life only.
Having reviewable premiums doesn't
always mean that the monthly premium
will increase in 5 years time. It could
go down also and will depend on the
claims that the insurer has over the
next 5 years. Another thing to consider
is whether you will have this insurance
in 5 years time or not anyway. You may
have had more children in that time
frame or remortgaged and got more debt
so you may have replaced the insurance
already with a more suitable policy.
It is best to speak to a financial
adviser who can advise on you life
insurance needs. Enquire using the short
form to get quotes and advice from a
qualified financial adviser.
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