CommInsure has entered the debate on the relative merits of stepped versus level premiums, cautioning advisers to consider a number of\u00a0 key points as part of their decision-making.<\/p>\n
In a recent article\u00a0by CommInsure’s Jeffrey Scott<\/strong> within the insurer’s Spotlight Series 2010, Mr Scott highlights four key factors\u00a0for advisers when determining the suitability of\u00a0stepped or level premium for their clients:<\/p>\n Addressing\u00a0the issue of the cumulative premium crossover point, Mr Scott cites a policy scenario where\u00a0a 25-year old client\u00a0would need to retain their policy until at least age 51 before the cumulative stepped premiums exceeded the level premium option:<\/p>\n “If the client lapses the policy within the first 26 years, stepped premiums would have been more cost effective,” said Mr Scott, who also acknowledged that these numbers change depending on the age of the client at policy commencement.<\/p>\n Mr Scott also cautions over what he refers to as the ‘hidden’ cost of CPI indexation and the potential impact this may have on level premiums.\u00a0 While some insurers apply all annual indexation increases based on the client’s age at commencement, Mr Scott says many products apply CPI indexation increases at the client’s current age next birthday at each renewal date, which can lead to\u00a0significant\u00a0cost increases on level premium policies.<\/p>\n\n
… a 25-year old client\u00a0would need to retain their policy until at least age 51<\/h6>\n