Guaranteed vs Reviewable Premiums

Chubba

Hello

I am looking to get some life insurance with critical illness cover on a joint life basis for our first mortgage. I've just done some quotes and there is a guaranteed premium option.

I thought for a decreasing term assuarance, as your mortgage comes down then your premiums come down as well? If that's the case why would you opt for the guaranteed premium? Or is it not true that your premiums decrease over time?

Secondly, for reviewable premiums, can the premium ever decrease upon review? The mortgage broker/adviser I spoke with says it may do but has anyone have this happen to their premiums?

Many thanks for feedback.

kingstreet

The premiums are lower because the cover decreases. They don't reduce as the cover reduces. If they did, the cost at the outset would have to be higher, as it is for level term.

Guaranteed premiums give you the certainty of knowing your premiums will never change during the policy term.

Reviewable rates are based on the insurer's claims experience for that type of business, so they could increase if there was a sudden glut of critical illness claims. I have a reviewable rate CI policy and it hasn't changed in the eight years I've had it.

I wouldn't expect a reduction in claims to result in the rates on existing policies falling. What is important is keeping your plans under review. Rates for life and critical illness cover are changing all the time and the cheapest/best combination today may be different in a year's time.

As an aside, may I suggest you consider income protection cover like permanent health insurance to replace your income in the event of long-term illness or disability. This is payable for much less severe conditions than critical illness cover and could be a more valuable option at this time.

dunstonh

I thought for a decreasing term assuarance, as your mortgage comes down then your premiums come down as well?

That would only happen on a yearly renewable decreasing term assurance (and only if you are in your 20s or early 30s).

A decreasing term assurance would have level premiums which are either subject to review every 5 years (or other defined frequency) or guaranteed premiums (which cannot be changed).

So, thats three different types of policy just there (we will ignore the other 10-12 as they are less common ).

for reviewable premiums, can the premium ever decrease upon review?

I have known them increase but never decrease.

magpiecottage

dunstonh wrote: »

I have known them increase but never decrease.

By contrast, although generally more expensive initially a guaranteed premium will not, of course, go up.

However, if you are still in good health it can be worth seeing what a new policy for the balance of the term would cost as it will often be less. This is more the case for level, rather than decreasing, term assurances and you MUST get it into place and "on risk" before cancelling the old one.

You also need to ensure any CI cover is the same (or accept any differences) and that any trust arrangements are replicated on the new policy.