Should you have Guaranteed or Reviewable Premiums for Life Insurance?
Posted on February 4th, 2011 in All Posts, Critical Illness Cover, Term 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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