Your premiums buy units in one or more investment funds. The value of these units can go up or down in line with the investments that make up the fund, affecting the value that can be used to help pay for the costs of the life cover as the people covered get older. ReAssure’s unit-linked whole-of-life policies could be maximum cover or standard cover policies:
Maximum cover policies allow you to get a higher amount of cover for a lower initial premium. The premium is lower because almost all of it is used to pay the actual costs of your cover during the current review period, with nothing held in reserve to help meet increasing costs in later years.
After 10 years a policy review takes place to work out the cost of your protection benefits up to the next review point, which is usually after another five years. It’s normally necessary to increase your premiums in order to keep the same level of cover. This is because your cover costs more as you get older and your policy is unlikely to have built up any surplus funds to help with the increasing costs.
However, any changes in your health aren’t taken into account when working out the cost of your cover, as long as your premiums are maintained. This means that even though your premiums are increasing, the premium for a new policy could be even higher, depending on your health.
Standard cover policies start with a higher premium, but aim to maintain a more level premium throughout the life of your policy. The aim of the higher premiums is to build a value in your choice of investment funds. This is used to help meet the increasing costs of your protection benefits in later years, reducing the need for your premiums to increase.
The level of growth achieved by this investment element cannot be guaranteed though, so your premiums may still need to increase to keep the same level of cover. This is particularly likely once you reach age 65 (which is when life cover costs start to rise sharply), or once the value of your investment funds has been used up.