Did you know: the benefits of Level Term insurance
We ask financial adviser Richard Thomas to explain the benefits of what is known as “Level Term” insurance. Dunedin-based Richard has been in the insurance industry since 1983, and an Authorised Financial Adviser with SHARE since 2007. SHARE has a network of financial advisers across the country, who provide specialist insurance, investment, KiwiSaver and mortgage advice to Kiwis.
You may already know that life insurance products are priced on the age of the insured person, with premiums rising annually as you get older. The older you get, the higher those premiums rise – and so often people feel forced to reduce or cancel their valued cover to keep their premiums within an affordable range.
But did you know that Level Term insurance gives you the option of retaining that valued cover for longer?
Level Term allows you to "lock in" some level premium guarantees, which has the effect of levelling out the cost of your insurance over the expected life of the policy. While it does increase the cost in the early years, it can also save a considerable amount in the latter years of the policy. Another thing to remember is the younger you are when you lock the premiums in (and also the longer the life of the policy), the more cost-effective it can be.
For example, I recently saw one of my clients to discuss the potential savings he could make taking out both Life and Trauma Multi covers for a thirty year term. As a 36 year old non-smoking male, his first annual premium for a Yearly Renewable Term policy was $351.72. Compared to a first annual premium for a Level Term policy of $938.04, the choice may seem clear cut. However, fast forward thirty years later to age 66 and there’s a good chance he will be looking to retire. His annual Level Term premium is still $938.04 – whereas his annual Yearly Renewable Term premium has increased to $5,196.60.
Or to look at it another way, because Level Term has an agreed fixed premium for the life of the policy, the average premium is much cheaper – in this case my client’s average premium for Level Term would be $78.17 per month versus $136.57 per month for yearly renewable term. Plus it often means that under Level Term clients are able to keep the insurance covers in place for longer due to the premiums remaining affordable.
In New Zealand today, we often need insurance for a lot longer than previous generations. It is quite common today for a 65 year old to still have children at university, or for people to still be working well into their seventies. Many people still carry high debt levels at what used to be a retirement age, and so are reliant on one or two incomes for longer.
Many of my clients are grateful for the opportunity to lock in premium guarantees, giving them the much needed security for longer than their budget would allow on the traditional stepped premium structure.
It costs nothing to speak to your adviser to go through the options of level premium guarantees, but the end result could be of great value to you.
A disclosure statement is available from Richard Thomas on request and free of charge.
Disclaimer: The information published here is not financial advice. At Fidelity Life, we try hard to make the information we publish accurate and helpful to you, but we cannot guarantee its accuracy and we aren’t liable for any action you take as a result.
At Fidelity Life we believe strongly that financial advice should be tailored to your needs, and that you should get your advice from a professional financial adviser (which we are not). We can help you find a financial adviser in your area if you would like advice.
The information published here shouldn’t be taken as an endorsement of the author.