Indexation of life assurance

Lemo

I'm comparing some quotes for life assurance from a broker. In it he says that all sums assured are index-linked at 5% p.a. but that premiums will increase at different rates for different insurers and he gives the figures which are between 5% and 8%.

Looking at the initial quotes, Eagle Star looks cheapest and he is recommending them strongly. However, they have an increase of 7.5% pa where Caledonian are 5%. This means that over the lifetime (20 years) of the policy the Eagle Star policy will be more expensive.

When I questioned him on this he was very vague and was saying that those increases were maximums and not the real increases (although the wording he used in his quote was "will increase by...").

Can anyone shed any light on this? Is he pushing me hard towards Eagle Star because it's the best overall or might it be the best one for him?

Thanks.

nesf

As far as I know:

Brokers get different commission rates depending on which pension they sell you. So he may be pushing the best deal for him rather than you.


I am not 100% on this however, i'm pretty sure about it but I don't have the time to check it.

antoinolachtnai

So this product is a mix of a life insurance product (pays out if you die) and a savings product (pays out at the end of the term). Is that correct?

I would try and tease apart the two products if I were you. These two things used to always be linked together, but that isn't so common now.

If it's index-linked, then it won't be 5 percent per year. It'll be whatever the index is. As it happens, 5 percent is well above most of the inidices I can think of.

Are you getting this insurance to fufill a lender's requirement? If so, you really only need assurance for a declining amount over the course of the mortgage.

I would take it real slow until you figure out exactly what is being offered.

It is worth finding out what his commission will be (I think he has to report this to you truthfully, but IFSRA can tell you for sure).

Lemo

Thanks for the reply. It's purely insurance. I have a separate mortgage protection policy so this is just to provide for the family until the kids are reared.

antoinolachtnai

So it's a lump-sum insurance policy?

It might actually be ok for the lump-sum to decline a little over the course of the insurance in that case, as your children grew older. (And you should make provision for education in any case).

It all depends on what you want. I would get a few different quotes on it and read all the fine print. It is possible that what the advisor is saying is correct, but I doubt it. I just can't see how the insurance company can predict what inflation will be like in 10 or 15 years time. I also can't see why the premium would go up faster than the lump-sum.

(I'd expect the fact that the insured lives are more likely to end in the later years than the earlier years to be factored into a flat yearly rate, but it doesn't necessarily need to be done that way. This could well make the Eagle Star deal a better deal, if the starting-out premium is lower. To compare the two properly, you'd need to take the time-value of money into account.)

super123

The indexed option applies to all life polices. It various from 3 to 5%. You decide how much indexation applies to your policy. I would recommended you increase your prem by 3% every year in line with inflation. You should have the option on the policy proposal form.

(8% is over the top and would not suit unless you were putting this money into a pension or savings policy)


Please check with your financail adviser before proceeding with any of this information

Regards

PS Eagle Star a currently one of the best priced life compaines in relation to Life Assurance.

Please confirm with you broker that the figures
3-5% relates to the increase in your premium per year

5-8% relates to the performance of the policy