Level premiums are an interesting one, as every situation is different.

Level term has had some additional noise recently, with new financial advice rules raising awareness of the way advice in this area is delivered. 

So when do you need it?

It's not so much a question of whether you need it but one of how much you need it. 

Life insurance, like your mortgage, requires planning. Most coverage in the market today is what we call RFA or YRT, the rate for age and yearly renewable term.

In short, it increases every year based on your age; unless you can stop time, it will always increase.

Short Term:

For short-term needs, it's probably the best approach. And no, I don't mean the "I've got a $1,000,000 mortgage, and I'm going to win Lotto in 5 years and pay it off" approach. 

What I mean is you have a short-term need, 5-15 years. You expect to be able to repay the mortgage at a faster rate or you have an inheritance coming sometime in the future. This portion is best put on RFA.

Medium / Long Term:

Medium term is, to retirement age, and long term to age 80 or longer. By structuring your cover into the blocks it's likely to be needed for, you can significantly reduce your total cost of cover. 

Baseline cover to age 80 for an amount you'll need until then, a block for working age needs and then RFA for the cover you expect to have a reduced need for in 5-10 years' time. 

You can even throw in 5 and 10 year term options to really fix things in. However, they can increase substantially at the end of the nominated term if you still need them, which is the potentially painful part.

How much? is a more important question

Considering that a significant portion of life cover never pays because it's cancelled before the person passes away, you don't want to be paying more than you have to. 

Yes, that statement sounds like a waste of money, but it's quite the opposite. You need cover to get you from A to B; once you get to B, you don't need it anymore. But along the way, if the wheels fall off, you need the financial support the policy provides to complete the need or keep you on track while you recover.

It's a waste of money if you hold more cover than you need, pay more for it than you need to, or hold cover longer than you need. The flip side of the investment opportunity cost these three situations represent is the possible loss when you don't get it right.

Our approach to reviewing clients' situations often finds clients overinsured for their life cover; this reduces the premium available for the things they will claim for, medical, disability, and trauma. 

High net worth?

Interestingly, when we have been dealing with high net worth situations with significant debt, we've found the opposite, significant under insurance.

Getting it wrong with nice round numbers by over-insuring $3-500,000 for a need that's say $600,000 isn't a major, it just costs more than it should. But on the other end, I've seen a need that's been $ 3.2 million short, which is a significant gap.

Going through the process, I got the question so where's the money for my sister? My response, given this was the first time the client commented about his sister, was what money? We're $3.2 million short, add her to the mix, and it's now $4 million. Oops, someone messed up the last time this client was reviewed.

End of the day, you need advice

Good premium structures need a good foundation for the cover levels, the cover needs and the likely duration of those needs. A good adviser will ask the right questions about this. If you're not getting questioned maybe you need to find another adviser ;) 

Talk to us; we understand how to find the right solution for you so you have the most cost-efficient structure for you.

If you wish to read more, this earlier blog, level premiums what is this about, goes into much more detail on the subject