How your life insurance premium can increase by 1,384%

I’m currently dealing with a life insurance policy where the Life Company have carried out a ‘review’ of the premium and sum insured. They have decided that the premium needs to be increased by 1,384% if the persons insured want to maintain the level of life cover that’s on the policy, up to the next review date.

The policy was taken out 25 years ago and is what’s referred to as a Unit-Linked whole-of-life policy. The premiums on these policies are guaranteed for 10 years. They are then reviewed by the Life Company and they decide whether the premium, plus any cash value on the policy, is sufficient to maintain the level of cover until the next review date. After the 10 years, reviews are carried out every 5 years thereafter and annually after age 65.

The Life Company state that ..”unfortunately your policy has not been reviewed as scheduled.” My reading is that, they never reviewed it.

Specified Illness Cover - Financial Tip

As most of you will know, Specified (Serious) Illness cover pays out a lump sum if you are diagnosed as suffering from one of a number of specified serious illnesses (ie Cancer, Stroke, Heart Attack etc.), as defined in the product providers policy document.

If a ‘Critical Event’ happens (eg diagnosis of specified illness), then the insured must survive 14 days so that they are eligible to claim under the policy.

If you are in the market to buy this product, for a fixed level term, I would recommend that you buy the cover on a 100% ‘Accelerated’ basis.

This means that you insure yourself for Life Cover & Specified Illness Cover under the one policy, where the full sum insured is paid out in the event of your death or on a ‘critical event’.

The difference in premium between the ‘Accelerated’ & the Specified Illness policy only is very small and in some cases can work out cheaper. You also eliminate the 14 day survival period issue.

The Downward Spiral Continues

There isn’t a week that goes by where an Irish based Life & Pension company complains about the perilous state of their market. They are all in a ‘race to the bottom’ as they struggle with profitability and retention of business.

The Life & Pension market has nosedived about 60% since its peak in 2007. There is no way that anything like this number of regulated entities have exited the market since then. (I’m awaiting a reply from the regulator on the percentage increase/decrease since 2007.) So, where is their income coming from if there’s less ‘new’ business to go around? How can they all survive a decrease like 60%?

The dogs in the street know that there is a problem but no one seems to be doing anything about it, except complain. The only conclusion that I can come to is that the Life & Pension companies don’t think it’s their responsibility to change anything. If fact, there may be a mindset within the industry that is waiting for the regulator to ‘do something’.

The thing is, it’s not the regulator’s problem. The Life & Pension companies have created the problem themselves and it would not make sense for the regulator to intervene as, on the face of it, the consumer is benefiting from reductions in life insurance rates and enhanced allocation rates for pension/investment business.

As far as I am aware, Life & Pension companies have to submit annual figures on how many policies 'replace an existing contract, in whole or part', so the regulator should know what they’re looking at.

It may be that the Life & Pension companies want the regulator to say ‘your business model is doomed and you have to change it’. Of course, this would suit the companies as they could then ‘blame’ the regulator for insisting on change and save face with their broker/advisor market.

In the meantime, those who rewrite life insurance every few years will be rubbing their hands with glee at the prospect of rate changes (again) in December due to new gender equality legislation. ‘New’ policies means ‘new’ income. The downward spiral continues.