Financial planners should consider level premium policies when advising clients on life insurance, according to wealth management company MLC.
These policies have benefits for both clients and advisers, MLC general manager sales Peter Greenaway said, at the company's insurance forum yesterday.
"We are talking about a long-term relationship that is both better for the client - it is cheaper in the long run, causing the client to be more likely to have the policy in place when they most need it - and better for you, because you have earned more revenue... for much longer," he said.
Level premium insurance starts out with higher fees, but the fees remain constant until the age of 65. Stepped premium insurance starts off cheaper, but the premium increases as the policyholder gets older.
When costs start to rise sharply towards the end of a stepped premium insurance, many people decide to cancel the policy. "The policy becomes prohibitively expensive at the age a client is most likely to make a claim," Greenaway said.
However, clients might be put off by level premium insurance, because the fee is often not guaranteed, allowing insurers to raise it for the remainder of the policy's life.
To attract more customers, MLC announced yesterday it has now locked its level premium rates in for the next five years. This arrangement also applies to existing clients with level premium policies.
