Life Insurance premiums – Unlike aging you can stop them increasing!
Life insurance is a topic that causes most people to stop, think - then put it in the too hard basket or on a long list of financial decisions to mull. Emmett Mills explains why the time is now to look at the options and how you can stop your premiums rising sharply.
Those who get away to an early start with life insurance, say in their 20s or early 30s, have the advantage of lower annual premiums to match their less risky age profile.
However, by their late 40s and early 50s, when facing extra financial responsibilities such as mortgage costs and helping pay for their children’s list of needs and wants many start to second guess their commitments to some regular costs.
Costs under review often include insurance premiums.
I’m lucky enough to live in the wondrous top of the South. While Nelson is my home I also do weekly runs across to clients in Marlborough and make visits down the West Coast and beyond. I find many who have moved to these beautiful regions are older and have done so for lifestyle reasons. Of those taking out insurance, many are conservative by nature but also extremely willing to listen to sound advice.
One topic we regularly discuss is if there is a way to stop annual life insurance premiums increasing particularly as the rate for age (or how much you pay annually) jumps up from the mid 50s onwards.
The answer is that those forward looking can keep premium increases at bay.
This means transferring part of your existing Life Cover from those rate for age premium increases each year to an unchanging premium paid until the age of 80.
For example, a 46-year-old on the Sovereign Life Cover product might be paying around $200-$300 as an annual premium. That annual amount will increase to around $1,000 by age 61, then up to $2,000 at age 66 and to $3,700 by age 71. Most will be on a fixed and limited income, such as a pension by then.
To avoid those ever increasing premiums all the 46-year-old has to do is pay a bit over $500 each year. That becomes a flat premium remaining in place until the insured person reaches 80.
After then the premiums go back to rate for age.
So with my clients, many of whom I know personally, it is usually an easy option to change to the flat rate or “level” premium plan.
Many find life insurance a difficult topic to discuss overall, but it can also be reassuring. Although no one likes to consider their own mortality, a payout for your spouse and dependents can make a significant difference to their wellbeing. If it is the primary earner in a family that dies then the insurance will often include a lump sum that can be applied to pay off the mortgage on the home.
There are other benefits. A typical example from my region is for those in the farming fraternity that take out insurance. Often a farm will be purchased with a component of bank debt.
As any young person would imagine, taking on a farm with a large mortgage is a huge responsibility. But the knowledge that a $3 million life insurance payment will arise when dad goes to fix the fences at the great paddock in the sky, can be of real significance to these sons and daughters and makes succession planning for the family much easier.
For many, this means the next generation of owners have access to the proceeds of a life policy that will eventually become equity in the property.
Young farming people I know are often willing to take on the payments for their parent particularly if their mum and dad can no longer afford annual premiums. This can also be the case for urban families, especially where parents may have had to re-mortgage their property later in life.
At Lifetime we like to personalise the process to the benefit of all involved. In Nelson and Marlborough my clients are often people I have known for years and the community we live in is one where people know they are living in a slice of paradise. We all want ensure our children and their families get to see the world around them in a similar vein.
But we also know the lasting damage from unforeseen events such as the Canterbury earthquakes and financial ructions on world markets.
We make sure that life insurance options like Sovereign Level to age 80 life cover (which includes a payout to those that have been diagnosed as terminally ill), are designed to fit together with other policies. Given the terminal illness payout clause, about a third of our life insurance customers get the payout while they are still alive.
Some of our clients are keen on a wraparound service, taking life insurance and adding other policies including income protection to the total cover.
Lifetime is also able to offer policies for total permanent disablement. This can lead to what is talked about in the industry as financial death, meaning an inability to return to the workforce, trauma cover, and a lump sum for those diagnosed with cancer. Not nice to think about but gratefully received when required.
Meanwhile, the ease with which people can move to a Level to age 80 option includes no need to undertake fresh medical tests or fill out detailed forms. Rather, customers are already medically underwritten through the existing policy.
I often take notice of those that have chosen to live in the Nelson region. It is with some pride that I think of the advice I have given some of those people and the resulting peace of mind. Good insurance allows people to concentrate on life’s gifts.
Article by Emmett Mills
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