How Increasing Insurance Costs Work Against Policyowners

Concept / Objection
Written By A Think Lab

Investment insurance policies offer flexibility during financial uncertainties with premium holiday and withdrawal options—features not available in term or whole life insurance.

However, here are key factors to review with your clients to assess if an investment insurance policy aligns with their needs,

  • Increasing Assurance Charges (Death/Disability/Critical Illness and Early-Stage Critical Illness)

  • High Policy Admin Charge (Most ILPs have a perpetual $5/month admin fee. For a user paying $100/month in premiums, this amounts to nearly 5% of their payment)

Illustration

The illustration above reveals the assurance charges for a female user's investment-linked insurance policy, providing a clearer understanding of cost dynamics.

The policy includes $200,000 in death coverage and $100,000 in critical illness coverage, without early-stage critical illness protection. The coverage amounts are multiplied by their respective assurance charges, demonstrating how total costs rise over time against the premiums paid.

If investment growth remains stagnant and investment charges are not factored in, the cost of coverage will exceed the premium contributions by age 57.

Additionally, the widening gap between premiums and costs as one ages is an essential discussion point for clients reviewing their ILP holdings.

At this point, the user may need to top up funds to cover the deficit, depending on factors such as poor investment performance or partial withdrawals. Conversely, strong investment returns could help offset the rising assurance charges.

This highlights the inherent uncertainty of life insurance coverage in ILPs, unlike term or whole life insurance, where coverage and premiums are guaranteed.

Make use of the resources below, including an Excel sheet with assurance charges (reference from a company ILP), to illustrate costs based on your clients' investment plan coverages.

A Think Lab
Previous

Key Differences between Older and Newer Critical Illness Policies