Ensuring You Can Afford Income Protection in the Long Run
This is a very important question and one that is often overlooked by people seeking cover. It is vital that the policy is affordable not only today but in the long-run also, especially as the risk of illness or injury rises with age.
When looking for a traditional (Long-Term) Income Protection plan covering your earnings against the risk of accident or sickness up until retirement there are a number of options as to how the premiums can be structured:
- Guaranteed Premiums
With this option the premiums are fixed over the life of the policy, thus ensuring the insurer doesn’t have the right to alter how much you pay. This option usually has higher initial premiums but often works out as the less costly option over the life of the policy.
- Reviewable Premiums
With this premium structure the insurer is free to make alterations to the premiums over time. Although the premiums are initially lower there is the risk that the monthly cost may become too high at older ages or if the insurer experiences a notable peak in claims in a given year.
- Age Banded Premiums
Many of the Friendly Societies use this premium structure where the monthly cost rises significantly with age, sometimes by over five times. Many people take out these plans thinking they are getting the ‘best deal’, only to find out the policy becomes very expensive and often unaffordable down the road.
Which Income Protection Premiums Should I Choose?
Where possible we usually recommend guaranteed premiums so the policy is affordable long-term and the insurer doesn’t have the right to make changes. However, for manual workers it may be necessary to have age bounded premiums to gain own occupation cover.
Over the life of the policy it is sometimes the case for white-collar workers that the total cost of age-bounded premiums can work out lower. Drewberry uses a calculator to establish the total cost of each option when recommending the most suitable choice to our clients.