Cost of the Policy

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Cost of the Policy

The disparity between the cost of protection and investment-oriented contracts mentioned on p. 21 will be reiterated throughout the next two sections. Since the vast proportion of the premiums on any participating, or even non-participating, policy aimed at producing a capital sum will be devoted to investment rather than to providing life cover, the cost of a given sum assured for an endowment policy of a given term does not vary greatly according to age.

For example, a with-profit endowment policy for a given sum assured over 15 years would cost the same at 30 as at 20, only 2-3% more at 40 and about 7% more at 50.

So long as you are in reasonable health, therefore, you will lose very little, in terms of premium rates, by delaying taking out an investment-oriented contract until you are older (though of course the longer the period of saving, the larger the return will be).

However, if we look at protection by itself, the picture is completely different.

A 45-year-old man will pay up to four times as much for a 10-year term assurance policy as a 30-year-old; and a man of 55 will pay up to three times what the 45-year-old pays. Another way of seeing the difference is to look at the relationship between whole-life premium rates (premiums are payable throughout life) and term assurance rates. The 30-year-old man would pay about £190 a year for a £500,000 whole-life policy. A 15-year term assurance with the same sum assured would cost him about £1117 a year. For a man of 55, the cost of the whole-life policy has more than trebled to just over £1300. But the cost of the 15-year term assurance has multiplied tenfold to £11170.

The conclusion, inevitably, is that pure protective life insurance is best bought young, when it is so cheap as to be insignificant (at least by comparison with what you have to pay later). The sharp rise in the mortality curve after 30 is reflected in a steep increase in premium rates. This is one of the basic and essential facts about life insurance and as we move on to a detailed look at protection policies there will be plenty more examples to prove the fact.

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