LONDON, May 16, 2011 /PRNewswire/ -- Drewberry Insurance reveals how initially attractive 'low-start' premiums for income protection insurance could end up costing thousands of pounds more over the life of the policy.
When taking out income protection insurance it is very common for the 'guaranteed premium' option to be selected where the monthly cost remains fixed over the life of the policy. However, some insurers only offer premiums that increase with age, which are often referred to as 'low-start' premiums.
As the name suggests, with low-start premiums the monthly cost starts off very low but increases significantly over time. When comparing the cost of one income protection plan relative to another many consumers are naturally drawn to the low monthly premium quoted. Some consumers are unaware that the cost of these plans rises over time, let alone realise the magnitude of these rises.
For a large proportion of the UK workforce taking out a plan with low-start premiums could cost thousands, and in some cases tens of thousands of pounds more over the term of the policy, which usually runs until planned retirement age. Caution and proper analysis really needs to be taken when considering these plans.
Tom Conner, head of protection at Drewberry Income Protection, says, "Far too many consumers are unknowingly taking out income protection plans where the monthly cost can increase by more than five times over the life of the policy, which is a real worry.
"Not only are there issues relating to long-term affordability, but the simple fact is that an initially more expensive plan with guaranteed premiums could result in huge savings over the policy life. If the premiums look considerably lower than quotes from other insurers it is usually for a very good reason, they increase significantly down the road."
Example of True Low-Start Cost
To provide one specific example, take the case of a 35 year old, non-smoking, male accountant looking to protect 2,000 pounds Sterling per month until age 65 with an 8 week deferred period.*
The lowest quote with guaranteed premiums taken from a range of leading income protection insurers was 57.35 pounds per month. One leading insurer who only offers low-start premiums quoted 31.96 pounds per month, which equates to an initial saving of 25.39 pounds per month.
However, the premiums with the low-start plan rise to a maximum of 164.36 pounds per month at age 58, relative to the fixed monthly cost of 57.35 pounds with the guaranteed premium option. A premium level this high could cause serious affordability issues for a vast number of households.
Over the entire life of the policy the total cost of the guaranteed premium plan works out at 21,334.20 pounds, compared to 33,311.76 pounds with the low-start plan. Thus, the low-start income protection plan would cost as much as 11,594 pounds more over the term of the policy, equating to 54 per cent more for cover. This clearly puts the initially low premium into perspective.
Notes to editors
Please note that information contained in this press release relates to income protection policies (formally known as permanent health insurance) rather than short-term accident and sickness insurance.
*Please see the following report for further information:
About Drewberry Insurance
Drewberry Insurance is a trading name of Drewberry Ltd, which operates as a whole of market insurance intermediary in the health and protection insurance markets. Drewberry Insurance offer insurance broking services for a range of individual and group policies, through the following specialised websites:
Drewberry Group Insurance – Informational resource for implementing group health and protection schemes as part of an employee benefits offering.
Drewberry Mortgage Insurance – Informational resource for arranging mortgage protection insurance, such as life insurance and payment protection.
Drewberry Health Insurance – Informational resource for arranging both personal and family private medical insurance (PMI) plans.
Drewberry Ltd is an appointed representative of Chase Templeton Ltd which is authorised and regulated by the Financial Services Authority, register number 311612. Registered address: Vantage House, 1 Weir Road, London, SW19 8UX.
For further information please contact:
SOURCE Drewberry Insurance