Finding your life insurance premiums are going up each year? Here’s something we want everyone to know about how much it’s really costing you.
Let’s look at three examples where people have saved themselves tens of thousands of dollars in the long run by locking in some level life insurance.
Let’s first look at Danielle – a 25 year old female with $200,000 in life cover.
Here’s what Danielle’s going to pay each year until she’s 80:
So on a stepped (or ‘rate for age’) premium she starts out paying around $16.10 a month, but as she ages the premium goes up every year. Danielle could choose to pay a lower premium now, but know that in the long run her premiums are going to increase significantly as she gets older. Or, if she locks in level cover when she’s 25, paying just $28.35 a month, she’s going to save $145,735 over the course of her life.
Using the same examples, here’s how much these guys would save:
- Chris – a 40 year old male with $100,000 in life cover would save a whopping $91,524. A level premium would cost him $31.06 a month.
- Roger – a 55 year old male with $50,000 in life cover, even starting later in life would still save $38,597 over the course of his policy. His level premium would be $37.54 a month.
As you can see, it’s worth locking it in earlier to get the better rate. But level premiums can make sense later in life too, depending on your individual needs.
The usual way – stepped or ‘rate for age’ policies
Rate for age policies do just that – they are rated on your age, and premiums increase each year, every year, until you push up the daisies. They generally stay at a reasonably low level while you are at a ‘low risk’ of dying, but as you get older the premiums really start to ramp up, and can quickly become expensive and no longer affordable.
These policies still absolutely have their place – after all you might pay off the mortgage early and not need life insurance after say age 55. But then again, you might not. It’s worth considering all of your options to get the right mix for you.
What is Level Life Insurance cover?
It’s as the name suggests – the premium stays the same for the entire life of the policy. It will cost you more at first but there’s a break-even point – after a period of time the ‘rate for age’ premium starts to exceed the ‘level’ premium (as shown in the above graph), and the savings can be immense. It’s worth doing sooner than later, as the earlier you lock in your premium, the lower your premium will be.
The modern way – a mix of cover appropriate for your situation (including level cover if appropriate)
Level life insurance cover is great if you want to have life insurance in place for a long period of time. Once the mortgage is repaid for example, you may still have other risks you need to cover, such as funeral costs and leaving your partner financially supported.
However if you have a ‘rate for age’ term policy all is not lost – these can be easily converted to a level premium (with your existing provider) without underwriting or medical questions.
Depending on the risks in your life and what you value most, you may want a mix of policies that will address the different risks likely at the different times in your life. Talking this through with an insurance broker will enable you to get some perspective on the things that matter, and find a solution that’s going to work for you and your family.
Want to find out how much you could be saving?
We can take a look at your situation and supply you with a graph to compare how much you would pay on ‘rate for age’ versus ‘level life’ cover, based on your particular circumstances. Simply contact our life insurance advisers to take a look.