Yet another good article from MoneyWeb - these are due to the convention that raised these issues. One Reader had the following question: What does this mean? However, keep in mind that higher benefit escalations will increase the initial premium and higher premium escalations will decrease the initial premium. My own take is as follows (plus I included some additional info): At the point of sale - if you choose to have, say a 20% compulsory annual increase in the premium with a lower increase in the benefits, then your initial premium is reduced (discounted). Whereas if you choose to have a 20% compulsory BENEFIT increase, then the initial premium will increase (greater risk to the company). Problem is that future premiums ALSO increase at a greater rate & you cannot simply decrease the annual increases as this lead to all sorts of problems, including decrease of benefits. The most expensive way to structure a Life policy is with a LEVEL premium with VOLUNTARY annual increases. You must also be aware that most companies now have an initial PREMIUM GUARANTEE TERM. This is usually 10 years, but some companies offer longer terms - 15-20 years. This is also an important feature because the GUARANTEE TERM is the period during which the company CANNOT review the cost of your cover - irrespective of their claims experience. Once the GUARANTEE TERM expires, companies CAN review the cost of your cover and this would usually lead to an increase in the cost over-&-above the usual annual increase. At that point, the company would also usually provide you with a new GUARANTEE TERM for another 10 years or so. The younger you are, the lower the cost of the LEVEL PREMIUM cover and this is another reason why folks should buy their cover early - as long as they are not persuaded to replace those policies at a later stage, of course. If I could start my portfolio over from a young age again, I would buy one size-able Life policy with a combination of standalone benefits (Disability/Income Replacement/Severe Illness) with a LEVEL premium and VOLUNTARY annual BENEFIT increases. At any time in the future I would be able to both cancel the annual increases AND reduce the cover if I felt the need. I wouldnt top-up that policy at all - but rather buy additional cover with newer structured policies and keep the original as my backstop. Thats some free advice for any youngsters out there who are confused or considering a policy.
Posted on: Thu, 26 Jun 2014 09:42:27 +0000
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