I am looking to take out Mortgage Life Assurance with Critical Illness Cover but I am not sure which is best – reviewable or guaranteed life insurance? Ideally I would like the monthly premiums to be fixed over time.
When taking out Life Insurance for your mortgage (with or without Critical Illness Cover) you are usually offered the choice of reviewable or guaranteed premiums. There is a significant difference between the two.
- Guaranteed Premiums
Monthly premiums remain fixed over the term of the policy. In other words the premium you pay now will be the same as at the end of the policy as the insurer does not have the right to increase the premiums over time
- Reviewable Premiums
Here the insurer has the right to increase the monthly premium they charge for providing cover. In other words, the insurer will periodically ‘review’ your premiums. With most insurers the premiums will be guaranteed not to change in the first 5 years but could go up significantly thereafter.
When deciding whether to raise premiums the insurer will consider their claims history, expectation of future claims, the impact of medical advances, tax and wider economic factors, such as interest rates. Your specific health circumstances will not be considered.
Reviewable or Guaranteed Premiums?
Which option is most appropriate will depend on your specific circumstances and therefore it is usually best to speak to an adviser.
Monthly premiums usually start off lower for plans with reviewable premiums but the total cost is usually higher over the life of the policy relative to plans with guaranteed premiums.
Some individuals prefer to have slightly lower premiums now and pay more later whereas other individuals would rather have the monthly cost fixed for peace of mind and wider financial planning.
For individuals looking to take out life insurance at a relatively young age it usually makes sense to consider guaranteed rates as the monthly cost can be fixed now at a very low level, thus resulting in cost-effective cover on a long-term basis.