Life Level or Convertible life policy?

M

misspolly

Guest
Hi
I am looking to put a life policy in place, €400k joint cover, myself and hubby, indexed, for 25 years.
We have 2 kids ages 2 &1 & another on the way and we are both 36.
I have been back and forth on whether to pay extra for a convertible (instead of level) life policy. I figure that after 25 years (we are both 35) that the life cover will be so prohibitively expensive anyway, at that point, that there is no point in going for that. I dont see us continuing to pay life cover beyond when we need to.
Am i missing something vital in my reasoning? Should we be planning to extend cover in which case I should take convertible now. Is it better to have convertible in case of ....something?!! I don't know! Any help appreciated.
 
Assuming the insurer accepts your proposal then the advantage to you of having a conversion option is that the insurer cannot refuse to cover you for the rates they quote for a healthy person of your then age for up to the level of cover you have at the time you opt to convert.

It doesn't cost much to have the option and if you can afford it go for it. In passing, please double check with your adviser the level of cover you should have and the term.
 
The convertible option will also allow you to alter the policy during the term of the policy (although some companies will only allow you to convert at the end of the term, so check this with the company you are getting quotes from). Which can be handy if you need to alter cover. Your premium in 20 years time will depend on the cover required (remember you will prob not need €400k cover in 20 years as most of your dependents will have grown up). Generally there isn't a massive difference between level & convertible term premium rates so I would consider the latter. You might also want to consider a dual policy rather than a joint one (dual will pay 2 * €400k if both of you die in the term, joint will pay 1 * €400k - again there is often little in the difference premium wise between the two).Hope this helps.


www.powerinsurances.ie
 
Hi misspolly, welcome to askaboutmoney.

Echoing Sumatra, do you know why you are taking out 400k over 25 years? Is this based on your salaries or just plucked out of thin air?

Convertibility is not expensive, I would advise adding it.

Do you need to add indexation though? After 25 years your premiums will be huge. I would advise you to take out a larger level of cover now but with guaranteed premiums. Your level of life cover should reduce as you get older, inflation will do this automatically for you.

Indexation can be a money spinner for the insurer though there are sometimes good reasons for indexation e.g you want to leave a large inheritance or you have substantial tax liabilities but ensure you know why you are indexing the cover.

Finally if you are happy to add indexation make sure the insurer increases sum assured and premium at the same rate. Many insurers will increase your premium by 8% but your sum assured by just 5%. Sneaky.
 
Hi Misspolly

First of all, a convertible term policy is the same as a level policy, it's just that at the end of the policy term, you can extend it (for the same level of cover) for a further term without submitting medical details.

What do you need the cover for? If it's just for a mortgage, I would be inclined to go with a joint life decreasing term assurance which will decrease in line with your mortgage. This is a lot cheaper than level term assurance. If you are taking out an interest only mortgage then you would need a level policy.

If you're taking out a protection policy just to cover yourselves in case anything happens, I'd be more inclined to go for a whole of life policy than a convertible term. You can get indexation on this type of policy but it's normally an increase of approx 5% on your benefits and 8-10% on your premium per year so do you really need it?

Is there a reason for the specific amount of cover? As far as I remember, the life companies used to only accept about 3 times your combined salary for personal cover. That might have changed in the last few years though.

Also, why the specific term?
 
Thanks for the responses.
Firstly I should have said it is a dual policy, not joint.

We dont have a mortgage, it's to provide something for the remaining spouse and kids if anything happens to either or both of us. The amount of cover is based on salaries.

Re whole of life - It never occurred to me to get a quote on this. Surely it would be very expensive? I based my 25 years on the kids mostly being through college by then and us having the major expenses of childrearing out of the way by then. Is this not what people generally do?

I wanted to go with a company that will be around in 25 years time so I picked a well known Irish company - I don't think they offer the protected indexation (i.e. indexing premium at same rate as benefit) so I just assumed I had no choice, I will check that with them. I did think carefully about the indexing generally though and thought it was better in the long term, without it 400k now will be worth nothing much in 20 years time when the kids are about to go to college!

If I wanted to change the level of cover down in 20 years time, would I have to take out a new policy or is this where having the conversion option would be a benefit?
 
Irish Life is small - market cap of around 5bn compared to say Aviva with 12bn and Zurich with 27bn. More chance of those 2 being around in 25 years.

Irish Life increase premiums at 8% and benefits at 5%.

Life cover will be used to replace your salary into the future, the cost of college should not come into the equation. In an ideal world there would be a separate savings policy to cover this.
 
A whole of life policy can be taken out on 2 different basis. One is reviewable and the other guaranteed. In my opinion a reviewable policy that allows insurers to up the premiums with no guarantee of how much is like signing a blank cheque to them. There are numerous posts on this website about the downside of this type of policy.

Guaranteed whole of life policies are good but they are very expensive when compared to a fixed term policy as the insurance company has a good chance that they will have to pay out on them at some point.

In relation to the indexing, I would agree with previous posters that this could become expensive for you in the long term due to differences in the indexation rate of benefit and premium. An alternative that may work out cheaper for you is increasing the sum assured now to account for inflation in the future, ie considering 600k life cover. The advantage of this is that you get the rate now at a relatively cheaper cost as you are younger. It could work out a lot cheaper than the indexation option depending on the amount chosen.

Most people revise their life assurance requirements when their children have grown up and revise their cover down to suit their circumstances, ie maybe have 20k to 50k cover to look after funeral expense etc. Term policies are inflexible though, you would not be able to change the cover down on a term policy so here a conversion option could be useful as you could convert to a new policy with a lower sum assured.

Hope this helps



www.CheaperLifeAssurance.ie
 
As a little indication of how premiums rise.....
my dual "Whole of Life" policy is now due for review (after 10 yrs) and the premium has shot up over 100% (from e133 to e300) for the same cover (approx. 450k), subject to further reviews every 5 years.

(I was thinking of maintaining the premiums at a fixed amount, but of course the cover amount reduces drastically.)

I've been offered a Term policy (12 yrs) with a conversion option (2 term max. --ie 24 yrs total), so your posts have given me some further insight into "reviews".

BTW.....is New Ireland considered one of the larger companies (ie one that may survive this economic turmoil)???
 
Maybe I'll wait it's near my next review.

Then-again, I'll be 5 years older.......
 
NorfBank said:
Life cover will be used to replace your salary into the future, the cost of college should not come into the equation. In an ideal world there would be a separate savings policy to cover this.
Click to expand...

Is there a ballpark rule that people generally use when considering the cover to take, If you were to consider this then what multiple of salary is the norm ?

If you hold what you say to the letter of the law then you would need to consider 20 times salary in case you die within the first year of the policy but does anyone really do this ?

Do any companies offer a product which provides a decreasing level of insurance

eg 20 times salary if you die in year 1, 19 times in year 2, ..... down to 1 years salary if you die in year 20.

Would seem to be a sensible approach.
 
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