For years the only type of life insurance that was sold in this country was called whole of life cover. Sounds simple. Pay a premium, get covered for the whole of your life. Where do I sign? Like all things in life there is unfortunately a catch.
Broadly speaking there are 2 types of life insurance plans. Guaranteed and reviewable.
About Whole of Life Plans
Whole of life plans are reviewable. That means that as you get older, the premium increases to reflect the fact that you are older now and more likely to kick the proverbial bucket. But I am not talking about simple inflation protected 5%’s. Often a person will have a doubling of the premium every couple of years as they enter their 50’s and get older.
Your choices are simple. Pay significantly more money every month for the same cover or have your cover reduced dramatically for the same premium. Sure, you can have the life insurance for the whole of your life, if you are prepared to pay through the nose for it.
The reality here is that life insurance companies are laughing the whole way to the bank. They know that in a significant number of cases, clients whose kids have grown up and whose mortgage is repaid will simply cancel their policy when the massive premium hike arrives through the door. Often the life company has received 20 or 30 years of premiums and will never have to pay out as the customer now feels the premium is unaffordable and now unnecessary.
Often these policies have savings built into the premium too, just to really muddy the waters. But again there is a catch. When the premiums for the life insurance increase, the terms and conditions of the policy allow for the excess premium to be drawn from the savings you have accumulated. Another regular item on Joe Duffy!
So what to do. Well, my advice is usually very simple. Go guaranteed. A guaranteed policy by its very nature guarantees the premium from the start. You know exactly what you will pay for the full term of the policy. Protect what needs to be protected, namely your mortgage and debts and your ability to deliver income for your family. If your mortgage is due to finish in 15 years and your kids will be self-sufficient in 10 years then have two policies corresponding to each need. No sneaky price increases. And cash in the savings too before the life insurance premium eats it up!
Naturally everyone situation is different and needs to be assessed individually but please don’t wait until you get a letter through your door to fix this. Just get in touch if you think you have one of these policies. We have got clients out of similar situations before the price increases kicked in and it has saved them a fortune.
I hope this article was useful. If you have any questions or comments please feel to leave them in the reply box below and I’ll address them here on the blog.