Published on September 28th, 2015 | by BoyleToday.com
The Financial Column
Q: I’m now in my fifties. I took out a life insurance policy 15 years ago but the monthly premiums are getting too expensive. I’m afraid that I’ll have to cancel it if the premium continues to go up. Ideally I’d like to retain the same level of life cover but only if I can afford it. What should I do? I don’t want to lose everything I have put in.
A: While I’d need to get the full details of your existing life policy to find out the existing benefits before I’d be in a position to advise you, it sounds like your current life insurance policy is a Whole of Life policy.
If this is the case then the benefit of a Whole of Life policy is that there is no maturity date on the policy and therefore it will pay out in the event of your death, irrespective of when that is, provided you keep paying the premiums. In contrast, a term life assurance policy has a definite term, say 20 years, with no value at the end of the term and pays out only if you die within the term of the policy. Level Term Life assurance policies do not have an encashment value.
Premiums on Whole of Life policies tend to be modest if you take them out when you are relatively young, in your twenties or thirties. Unfortunately on most Whole of Life policies the premium is reviewable, usually when you reach your fifties. Depending on the terms and conditions of your specific policy, this may be reviewable annually or, perhaps every five years. This usually results in a siginificant increase in your monthly premiums to a point where it may no longer be affordable for you. This appears to be the case with your policy based on your question.
In simple terms, as you get older, the risk of you dying increases, and therefore, the risk for the life insurance provider having to pay a claim increases. This means that they have to charge you more to insure the risk. However some Whole of Life policies do have a surrender or encashment value.
So what is the potential solution ?
You could take out a new guaranteed level term life policy for a period until you believe you no longer require life cover depending on your circumstances. For example, until a youngest child finishes full time education. This means you would have a guaranteed amount of life cover and that the monthly premiums are guaranteed for the term of the policy. You could then cancel your Whole of Life policy and, if there is an encashment value, you could use this to pay some of the premiums on your new level term policy.
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