Types of income protection premium

Guaranteed or reviewable or renewable premiums?

• Reviewable premiums, may start off low, but tend to increase increasing every few years, or even every year.

• Renewable premiums are a variant of reviewable premiums, and are reviewable whenever the policy is due for renewal.This may be one year or five years.

• Guaranteed premiums tend to be more expensive initially, but are fixed for the life of your policy, whether it is five or twenty-five years.

So, after a few years, that cheap reviewable premium may end up far more costly than the more expensive guaranteed rates if you can afford them. The extra peace of mind offered by a guaranteed rate may be worth having, although if you have a tight budget now but expect your income to rise faster in the future, then a reviewable premium may be better.

Although insurers are talking about a standard approach to reviewable rates, each company is different.

Trade association, the Association of British Insurers (ABI) strongly suggests to their member insurers that insurers should offer at the time of quoting, a clear explanation of:

• Why the reviewable premium product is appropriate

• How the review process works

• Why you might choose reviewable rather than guaranteed premiums

Reviews may be annual or at a regular period such as every five years.

Reviewable rates do mean that insurers who would not like to commit themselves to guaranteed rates for up to 25 years, offer income protection products.

On Guaranteed rates, always check for how many years the rate is guaranteed. 

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