Term Life Insurance Lowdown

Insurer Slashes Term-Life Rates

Based on research that showed that more than 75 percent of New Zealanders are struggling under the burden of heavy debts and underinsurance, the American International Assurance New Zealand (AIA) has decided that reducing its term life rates would be the best way to corner a significant piece of the country’s insurance market.

The 2005 AIA LifeMatters Survey revealed the following pertinent facts:

• People under 35 did not buy insurance because of the lack of funds.
• Families with more children tend to buy more insurance.
• More than 50 percent of the country’s residents do not have any form of insurance - life, medical, income protection or critical illness. Of those that do, only 37 percent have basic life cover, 33 percent are insured for medical expenses, 13 percent have income protection cover, and 9 percent have critical illness insurance.
• Only about 25 percent of those who are insured are confident that their cover is enough to sustain their families and/or dependants in the event of accidental or sudden calamities.
• More than 40 percent of New Zealanders would not be able to carry on normal lives for more than three months in case they were not able to earn a living. 

Accordingly, the insurer has cut back on rates by as much as 19 percent for three of its key customer groups:

• Active, consumer-focused trendsetters below 35 will benefit from an 18 percent reduction in term life rates.
• Families with young children will be allowed a reduction of up to 14 percent for 40-year-old fathers who do not smoke and a maximum of 18 percent for mothers of the same age.
• Business owners and professionals over 45 will get a reduction of 5 percent for sums above $500,000. The degree of risk in each case will decide the reduction percentage for this group.

The Age 70 Rule

The age 70 rule makes it hard for people who are 70 and above to get life insurance cover. The Financial Services Authority of the United Kingdom is reviewing this rule which disallows those who will be septuagenarians or older during the lifetime of any product from buying the product as insurance. They can only purchase it as an investment.

This means that financial advisors who sell only insurance products are barred from selling fixed-term insurance policies to people who will become 70 years of age or more while the policy is still valid. The fact that only those advisors who fall under the regulations of the Financial Services Authority are allowed to sell these policies, makes them more expensive and rare.

With intermediaries not authorized to sell life insurance as an investment product, the Association of British Insurers (ABI) is campaigning to get the rule changed.