Hi all - aural raises an important point about future costs of Term Life insurance. In the interests of providing useful knowledge so people are in a position to evaluate different product types then I thought I'd share some perspective on this.
Yearly Renewable plans have two key benefits in this regard. The first is Time Value of Money. With typical Level Term you pay each year an average of the cost for the whole period (i.e. you pay more today for future years’ risk). The simple financial planning concept of Time Value of Money holds that it makes more sense to pay the lowest amount you can today, so that you have more money in your pocket for other things (possibly savings or investments). The second benefit is Improving Mortality. If you buy a Level Term plan you will not benefit from the premium reductions that insurers make from time to time due to longer life expectancy because the premiums are fixed, unlike Yearly Renewable plans which typically are not. You should not count on such reductions but they have happened in the past.
For those worried about escalating premiums, when buying a Yearly Renewable plan through DirectAsia.com, a 55 year old Male Non-smoker will, between the ages of 56 and 65 years, pay a total of $39k for $500k Term Life & TPD (standard rates). If that person were a Smoker, they would pay $72k. For 61-70 years that same person would pay a 10 years total of $71k (Non Smoker) or $131k (Smoker), a fraction of the $500k sum insured. You should also consider that Term Life ceases to be a core need when you retire, because you no longer have a working income for the Term Life to replace. It is also likely any dependants (beneficiaries) you may have are of sufficient age to earn their own incomes.
I really hope this information sheds more light for forum members. Personally I've no interest in pushing people in one particular direction, just concerned that unfounded fears not based on an objective comparison will make it harder for people to find the right insurance for their needs.
Speaking for myself, I find there is so much conflicting information out there which only tells part of the story. When I do come across a website, or advisor who doesn't have a vested interest, and actually presents things objectively, I've found it hugely valuable. After all, I don't have all the time in the world, so I truly appreciate helpful information.
I hope that's in some way useful ....
Whichever plans you choose please understand the implications of the plan. Got some clients coming to me with worried look because their yearly renewable terms are escalating so much towards their 50s that they are considering dropping them. Reason? In another 10yrs the total premiums in the next decade they pay may outrun the protection value. They were also attracted to the low premiums when they were younger but when they age and their kids are still young they are stuck with high cost of living and increasing premiums from their renewable term and shield plans.
When in doubt do ask your adviser what would be the cost at the older age.
