Premium doubled

michmc82

Hi - had a life insurance premium doubled since last update 5 years ago? I’m over 70 but had the policy for 20 plus years. It has just kept going up and up this last 10 years but to double seems excessive? Or I can keep my payment the same but my payout would half?

Old_Lifer

You have a reviewable whole life policy.    Most of the complaints  about these policies  on  the Forum appear to be from those who have  taken-out a policy for a fairly high sum assured originally and who then  expect to continue  the same level of cover as retirement approaches and beyond.  

The cost of the life cover rises with age  and increases ever more rapidly later in life.     This means that the cost of providing your life cover rises each year  and now you are older,   each time  the  5 yearly review comes around,   you are being asked to pay   more  to  maintain the existing level of life cover.    Alternatively, you could continue to pay the same premium  and see the life cover  reduced at each future review. 

Buying life cover later in life is going to be expensive.    The cost of buying  your existing amount of life cover   will continue to rise ever more steeply each year.     May I suggest that you consider carefully the amount of life cover you actually need.

dunstonh

It has just kept going up and up this last 10 years but to double seems excessive?

Not really.  Reviewable whole of life plans with an investment element usually increase at review points (typically every 5 years starting after year 10 or 15).   These types of plans have been largely obsolete for 20-25 years.   Usually they are priced on the expectation of 1970s/1980s gross investment returns.   However, as the UK economy moved to a low inflation economy, gross investment returns fell.  So, the shortfall needs to be made up by the policy owner.   However, for the first 10-15 years, you have effectively had the life cover cheaper than it should have been and its been the provider that has carried that loss.    Once you hit that first review point (and future review points) the policyholder pays for it.

Also, a lot of these are not priced at point of sale but priced at review point.   i.e. you pay for cover based on the risk for the next 5 years.  You were in your 50s when you purchased.  You are now in your 70s.  Risk of death in the next 5 years is higher than it was when you purchased.  So, the premium goes up.

If you were buying today, you would not buy the product you have.   Today, you get guaranteed premium, non-investment linked whole of life plans.  Some even allow you to pay a single premium up front.   However, they were not common back when you bought it and typically only available via IFAs.

Do you actually need the life assurance now?

Is yours one of the types where you are allowed to stop paying at a certain age but retain the sum assured? (some do, some don't - the age is often 80 or 85).

Old_Lifer

Level premium (fixed  premiums) whole life policies were the the only type of whole life policy available  before reviewable whole life policies were introduced.   With a level premium policy you  effectively overpay in the early years and underpay in the later years.  The premium is evened-out  to produce a level premium.   In order to do this it is necessary to have a premium payment term term but  where a  policy did not have a payment term ,  a payment term would be assumed  in the calculations  (usually to age 90).

With a reviewable policy,  you pay the actual cost of the life cover each year  so the cost  of the life cover   is  less at the start  but it gradually rises  with age and later in life this starts to eat increasingly into  the investment value in the policy.   This is particularly so if the investment performance of the policy has been lacklustre.   Where the policyholder seeks to continue maintaining a fairly high level of life cover as retirement approaches and beyond,  the point is soon reached when  the policyholder  is asked to pay a higher premium to maintain that level of cover.   The policy then becomes increasingly more expensive at each review.

The policyholder can only be asked to pay more  at a review point.    The policy will be reviewed as stated in the policy  but in the early years the policyholder may not be aware that a review has taken place  if no increase in premium is necessary,   until  eventually,   later in life the policyholder is suddenly asked to pay a higher premium or suffer a reduction in the level of cover.