Home / - Reviewable Premium vs. Guaranteed Premiums

A wide range of life, critical illness and income replacement insurance plans can now be set up on the basis that the premiums are either guaranteed for the term of the plan, or periodically reviewable during the plan term.

Guaranteed premiums are almost always more expensive than reviewable plans initially as the guarantee has to be paid for at outset by the plan holder.

Premium terms are confirmed on the client specific illustrations.

If the premium is guaranteed this means that it will not change during the term of the cover. If the premium is reviewable this means that it is likely to change.

How and when insurers review premiums differs by provider. Make sure the documentation is read carefully before committing to any plan. Factors that may change and lead to a change in the amount the policyholder pays are:

• the future level of claims the insurer pays

• the amounts of money the insurer will pay to reinsurance companies with whom they share the costs of claims

• the number of plan owners who give up their plans early

• the insurer’s expenses

• inflation

• investment returns

• taxes and

• the amount of money the insurer needs to hold as financial reserves.

Pros and Cons

Reviewable premiums should allow you to buy more cover now for the same premium.

The downside is that the cover might become much more expensive in the later years, particularly if the claims paid out to other policyholders are higher than the life office anticipates. This risk of higher claim costs is significant as medical science pushes new diagnostic techniques forward with accelerates claims.

Guaranteed premiums provides the absolute certainty that if you can afford the premiums now then they won’t change for the entire term of the plan.