Do you know what a level premium pattern on your insurance policy means? Or which out of the three basic premium patterns will better suit your needs in the future? This month, we explain the differences between each of them and the important considerations when it comes to premium patterns.
Many individuals struggle to understand the terms and conditions set out in any insurance policy, including the various premium patterns and what they mean. As a starting point, the following explains the three basic premium patterns:
When deciding which pattern to consider, your age serves as a significant indicator of which option will benefit you the most. The following is a simple example to explain age-rated and level premiums:
In this example, the level premium pattern refers to an individual who initially pays a higher premium from the age of 25, while the premium and benefit (such as life cover) increases every few years up to the point when the individual decides to keep the benefit and premium level from age 40 onwards.
On the other hand, the age-rated premium pattern illustrates an initial lower premium for the first couple of years, but thereafter, as the risk of death increases with age, the premium also increases to the point where the savings of the first few years become irrelevant.
The following table explains this concept in more detail:
Therefore, with the level option, a total of R 364 884,99 is spent over the course of 24 years, compared to a total of R 945 567,55 with the age-rated premium pattern.
Important considerations when reviewing your life cover or when purchasing an insurance product:
- Switching premium patterns
You can always switch from any premium pattern to another one, but depending on the switch, the premium on a new premium pattern could vary significantly.
- Underwriting process
Always bear in mind that should you want to increase your cover in the future on an existing level premium pattern, you would have to apply for a new quote and undergo the underwriting process again. If you develop diabetes for example at an older age, this could lead to a significantly higher premium or a total rejection of cover.
- Future cover
With any of the premium patterns, one has the option of purchasing additional cover for the future. This would consist of an additional fee per month, which removes the risk of having to undergo the underwriting process again at a later stage once cover is increased.
- Cash back option
Some companies offer a cash back benefit for which you receive the total of all payments made with interest after a period of 15 years.
It is beneficial to discuss your financial situation with your financial advisor so that the best option is considered for you, while taking into account your age, affordability, retirement, amongst other factors. Contact WMD Financial Services to discuss or review your existing policy to ensure that it aligns with your financial goals.