MANY people have serious doubts about the value they are getting from expensive assurance education plans endowment mortgages, and even personal pension plans, mainly because of high upfront costs and commissions.
But as to the value of term life insurance, there should be no doubt: an on-going pricing war between the major life companies has resulted in Irish consumers enjoying the cheapest premium rates in Europe and a good opportunity to protect their dependents' future at an affordable price.
Family Money asked the leading life companies to provide monthly premium rates for £100,000 cover for male and female non-smokers, aged 30, 40, 50 years for a term of 20 years. We also requested the convertible term rates from those companies which provide such cover. (Convertible term assurance allows the policy to be turned into a whole-of-life contract at any stage of the term without a further medical examination. Only a few declined to participate in the survey. mainly because of impending rate changes.)
As the table shows, the younger you are, the cheaper the premium. Women enjoy lower premiums than men and younger women the "lowest rates of all. The table also shows that shopping around for cover will be time well spent since premiums can vary by as much as 70 per cent between insurers. For example, the cheapest term cover for a male, aged 30 is provided by Eagle Star (£10.82) and Norwich Union (£11.30) while the most expensive in the same category is from Hibernian Life (£17.50). The same first two companies (plus Guardian Life) offer best rates for a 40 year-old-male, while Equitable Life (£60.18) offer 50-year-olds the cheapest 20-year cover. The most expensive cover for a 40-year-old and 50-year-old is from Ark Life, AIB's life assurer with monthly premiums of £33.91 and £83.18 respectively.
The Equitable offers the keenest rates for women customers in all age categories - £8.35 a month for 30-year-olds, £16.98 a month for 40-year-olds and £38.15 a month for 50-year-olds. The most expensive cover for 30-year and 40-year-olds is from Hibernian at £14.11 and £23.67 a month respectively while New Ireland charged the most - £54.89 - to women of 50.
The convertible term rates, where applicable, are shown on the table in parenthesis, below the term rates and the differential is about 10 per cent. But the figures do not tell the whole story. Eagle Star, for example, builds in the convertible option automatically (and at no extra price) and also allows you to increase your sum assured in line with inflation - all without extra medical evidence. If you are under age 50 it also allows for the term to be extended to age 65, though the new premiums will reflect your increased age. Unlike other insurers who absolutely guarantee the cost of the premium, Eagle Star only guarantees that the premium will not rise if the current level of cover, their expense charges and an investment return of 4.5 per cent is maintained.
Other companies attach other benefits or conditions: Guardian Life has recently further reduced rates for non-smokers; Canada Life, which is the leading purveyor of serious illness cover will pay the policy holder 70 per cent of the value of the policy if they are diagnosed with a terminal illness and then pay the balance to dependents upon death. Norwich Union, meanwhile, will provide a small amount of free serious illness cover for one year with its level term plans worth over £50,000. Policies also include free accidental death cover. Terminal illness cover is automatically available, but only for policies valued at £150,000 or more.
Despite such low premiums, at least half the adult population has no life insurance and of that number, the average cover is Just £20,000, hardly sufficient for the dependents to replace the policyholder's annual income - the ultimate purpose of the insurance. Women who work both inside and outside the home are notoriously under-insured say the insurance companies. Considerable financial hardship can result for the surviving parent having to hire child minders and housekeepers to take care of the motherless family the income of which has been drastically reduced by the death of a wage-earning spouse.
Financial advisers suggest that a person with dependents should have a minimum of 10 times their salary or income in the form of life insurance, but this needs to be qualified by taking into account the payment of a death-in-service benefit, spouse pension, the paying off of a mortgage by mortgage protection insurance, and state benefits such as a widow(ers) pension.
A £30,000 income which is already partially protected by a £120,000 death-in-service benefit and mortgage protection worth, say £50,000, should probably be supported at the very least by another policy worth at least £150,000 in order to secure the equivalent of gross annual deposit income (at 7 per cent) of about £18,000 - the optimum return these days on deposit assets of £270,000. (The discharging of the mortgage represents an annual savings in the region of nearly £5,000). Combined with widows pensions, this cover might just about match the lost salary, though it is not, of course, inflation-proof and does not take into account the changed (and worse) income tax status of the now single spouse.
Finally, at least one company, Norwich Union has taken the first step in incorporating a year's worth of serious illness insurance into new term insurance policies. The amounts involved are quite small, and by limiting the cover to just one year this is little more than a gesture, but the principle has, at least, been established and it is probably only a matter of time before other life companies follow suit. For women fortunate enough to have life insurance of any kind, this is an important development indeed, since women hold a tiny fraction of the serious illness policies in the market.
A different company executive admitted last week that adding automatic serious illness cover to term contracts. even if the serious illness element was only a modest fraction of the term sum assured - would add very little to the total cost of the premium for younger policyholders" but could represent a significant breakthrough in the sort of cover available to women.
