Low Start is a new variant on Ageas’ existing plans. The concept is simple and was popular back in the 1980s with mortgage endowment products. In effect, the customer buys the same cover, but at a lower initial monthly premium. Annually, the premium increases and will eventually be higher than that on a regular premium plan. Indeed, over time, this is a more expensive way to buy cover, but it has the big advantage of lower premiums at outset.
Cover can be either term assurance (including terminal illness benefit and optional waiver of premium) or combined with critical illness cover.
If the customer chooses not to increase their premium in future, the plan can continue, but with a lower sum insured.
The initial premium can be up to 30% cheaper than for a level premium plan, the exact figure and rate of annual increase depending on age and policy term. A similar result could be achieved by having an annually renewable policy, but that would not guarantee future premiums as Ageas’ method does.
The low start system is suitable for customers in their mid 30s and above. For younger customers, the price difference in the early years is likely to be too low to justify the low start route.
What They Say
Managing director Martin Werth said: “In the current economic climate effective protection has become even more important, but customers’ budgets are being squeezed. We have launched Low Start to help customers afford the protection they need now. Low Start offers the same high quality benefits as YourLife Plan at a lower initial cost and is the ideal solution for customers who may have previously thought the level of protection they need was unaffordable.”
What We Say
Go back 20 or more years, and the low start route was popular on many mortgage endowment products because it helped customers’ cashflow in the all-important early days of their mortgage. High inflation rates helped, as mortgage costs tended to remain broadly the same (unless interest rates changed), while income could be expected to rise rapidly. The idea fell out of favour, partly because many customers did not fully understand what they had bought.
However, the concept remains sound – for the right customers and provided they understand fully what they are buying. Most customers are used to insurance premiums (eg for household or motor insurance) increasing each year, so life insurance is unusual in that premiums tend not to. But, this route is not suitable for all (especially if their net spendable income is unlikely to rise in real terms in future), can’t be used for younger clients (often, those who would most benefit from lower initial costs) and can end up costing considerably more overall than an equivalent regular premium plan.