Yearly Renewable vs Level Premiums
When taking out an insurance policy it is often confusing when deciding which premium structure to take. There are two main options and clients find it difficult to know which one is best. This is where I can help.
I often find the premium structure that clients have in place does not fit the purpose that they took cover out in the first place. Many have been advised to take a premium option that doesn’t suit their needs, and one which will cost them a lot more in the long run.
Understanding the options available and how it relates to your personal situation is vital.
1: Yearly Renewable Term – YRT
Policies with a yearly renewable term will have a premium increase every year. The agreed premium when you commence your policy will be applicable for one year only and on every anniversary of the commencement of your policy, the premium will rise in accordance with the insured person’s age and the company claims experience.
This option caters to the needs of those who require a shorter-term policy to cover costs which may reduce. It may also suit those who are older, require only short term cover and those who have a limited budget.
2: Level Premiums
Policies with a Level Premium hold premium base rates at the same level for a set duration. This is often for a specified number of years or until the insured person reaches a certain age. Premiums are higher at the commencement of the policy than those offered on a yearly renewable policy, but they then become comparatively lower in later ages. Once the policy has reached the set age or year agreed upon, the insured may be able to change to a yearly renewable premium, dependant on the insured persons’ circumstance at the time.
The key to obtaining a successful level premium is to sign on sooner rather than later. The younger the applicant, the lower the premium is likely to be. Level premium policies allow you to maintain affordability for a base level of cover. Knowing what your insurance costs are going to be in advance allows financial planning to be a smoother process.
I would not suggest a level premium policy if you are uncertain of the time-period you require the policy. However, this is certainly a great way of managing the long term insurance cost to ensure that you have cover when you need it most – at claim time.
As individual circumstances vary, always seek advice from an Authorised Financial Adviser before making any changes to your existing insurance plans, or taking out new insurance policies. Always refer to policy documents for the full information of cover and entitlement.
Published on Thursday, July 4th, 2013, under Latest News