Fixing Insurance Costs

June 2009

Imagine you could fix the price you pay for petrol at say $2.10 a litre for the next 30 years.  It would cost you a bit more at the beginning, but eventually you should be paying a lot less than the market rate.

Sound like a good idea?  You can do something similar with your yearly renewable term insurance.

Depending on your age and the cover you have in place, switching some or all of your insurance to a level term policy where premiums are fixed, may help make your long term financial planning more predictable.

For example, John (28) took out a Life policy with $250,000 level term cover for $23.14 per month, even though it was more expensive at first compared to an equivalent yearly renewable term policy ($20.88).

As he got older he bought more Life insurance as he accumulated more debt. When John reached 50, he was made redundant and ended up in a job that didn’t pay as well as when he’d taken out the policy 23 years previously.

Male Age Non Smoker	Yearly Renewable Term Monthly Premium	Yearly Renewable Term Annual Premium	Level Term Monthly Premium	Level Term Annual Premium
28	$20.88	$250.56	$23.14	$277.68
50	$60.95	$731.40	$23.14	$277.68

He was pleased he had his Life insurance at a level term, as by this time he was still paying just $23.14 per month. If he’d taken out a renewable term policy, his premiums would now be $60.95 and more than he could afford. He was effectively saving $453.72 annually on his premium.

_{The Terms Explained}

• _{Yearly Renewable Term - This is an annual premium structure that starts low and increases yearly with age. A Yearly Renewable Term premium is suitable if your insurance requirements are for a shorter term – for example paying off a 10-year mortgage.}
• _{Level Term - The premium and cover is fixed for an agreed period of time. Under a Level Term policy, you pay more at the start of the policy and much less towards the end (compared to Yearly Renewable Term). Level Term policies are better if your policy is needed for a longer time.}
• _{Combined - Alternatively, you may elect to have some cover as Level Term and the balance as Yearly Renewable Term. We suggest you consider switching the percentage of your yearly renewable term cover that you believe is required for the long term to level term cover.}