(06) 353 8655
(06) 353 8655
Two big trends in recent decades are that we work until we’re much older, and we have kids much later in life. The implications for our insurance portfolios are quite obviously that people tend to need to keep the cover in place for longer. A common reason for taking out cover is to protect the family financially in the event of you not being able to earn an income due to either ill health or death.
The problem is that as we age the premiums increase, often resulting in cancellation of cover due to unaffordability, just when it’s still needed the most. One scary statistic I came across recently is that the average age that people cancel Income Protection cover is 46, but the average age it is claimed is 47!
A graphical illustration of this problem can be shown by the red line (stepped premiums); a typical rise in premiums as you age. But you can elect a premium that is unaffected by age for the life of the policy when you take it out – this is called a level premium (blue line in the graph). As with a stepped policy, the premium may still increase over time but not solely because of your age.
As the graph shows, the stepped premiums will be lower than the level premiums in the early years of the policy. However as the policy holder ages, stepped premiums will overtake level premiums, which could be by a substantial margin. But here is the kicker: The time you need it most will be past the intersection point on the graph. If you are in your 50s or 60s and still have kids at home (very common now), or grandchildren to consider, that’s when it is tempting to cancel your insurance due to cost. But it’s also when the chances of you claiming are at their highest!
As an example, the projected premiums for a 25 year old taking out $300,000 of Life cover are around $30 per month for stepped premiums and $55 per month for level until age 80. If the policy is still in force at age 80, the person electing stepped premiums would have paid a whopping $285,000 in premiums, compared to only $36,000 in total premiums for the level premium option!
You can even combine the best of both types. Let’s say you want $600,000 in life cover for the family in the event of your dying and have a $250,000 mortgage. You could take a stepped policy for $250,000 for the time you still have on the mortgage – meaning lower initial premiums, as well as a $350,000 level premium policy to take you through to say 70.
Please ask us about this as it may be a good idea depending on your circumstances. It’s free to ask and could be well worth it.