Old Mutual Wealth’s (OMW’s) rolling term policy is effectively a renewable guaranteed premium term policy that turns into whole life cover over time.
Clients start by taking out a ten year term policy. Premiums are guaranteed and then, at the end of ten years, they can renew for a further ten year period, again with premiums guaranteed. Similar to renewable term insurance, Rolling Term differs in two key ways:
* Premium rates are guaranteed at outset so, although the premium will rise after ten years, the client knows upfront by how much at each of the first two or three (depending on age) renewals.
* There is no cut-off date, so the policy effectively becomes whole life cover by default if the client continues to review.
Initially, premiums should undercut those on a guaranteed premium whole life policy but will eventually exceed them, so OMW has produced an online tool that compares the two approaches and identifies the cutover point after which Rolling Term cumulative premiums will be higher. Whole life is available as an alternative, so it is the client who chooses upfront which route to take.
The policy also offers critical illness cover (becoming one of the few whole life critical illness cover options over time). The RedArc assistance service is also available to customers.
The policy also includes guaranteed increase options that can be used, underwriting free, up to age 90. The sum insured (and the premium) can be decreased at any time, which will also reduce the increase in premium at each ten year point of the rolling term policy and therefore the total premium paid.
The option to increase can be declined any number of times without being taken away.
What They Say
Head of protection Paul Roberts said: "Rolling term provides the flexibility of renewable term and the longevity of whole of life policies. It's similar to a renewable term policy, but offers two key benefits so that clients don't have to worry about an expiry age and premiums for each extension are declared upfront and guaranteed not to change, unless they change their cover. Clients will be underwritten at outset as usual but will have the peace of mind that no further underwriting will take place when renewed.
"This powerful combination is useful to mitigate potential inheritance tax liabilities, for business owners who are unsure when they will retire, and can include critical illness cover for the whole of the client's life."
What We Say"Rolling Term is one of three options available on Old Mutual Wealth’s Protect product – the others being fixed term and whole life. In this review we are focusing on Rolling Term.
"To some extent, Rolling Term turns conventional wisdom on its head, as we all learned in our early insurance days the advantages of the level premium system. That route is still the natural choice, but Rolling Term offers an alternative, with the major advantage of being cheaper upfront.
"Today, most protection needs are met by level, increasing or decreasing tem but, back in the ‘80s, renewable (every ten years; more frequently at older ages) convertible (to whole life) term was popular and offered a cheaper alternative to whole life – at least initially. However, such plans usually ran out before retirement age and never offered guaranteed future premiums, and the premium hit at renewal could be an unexpected ‘ouch’.
"Rolling Term avoids both downsides and the online tool enables clients to decide whether lower costs today is preferable to lower costs tomorrow, based on realistic life expectancy. So, a young couple might decide to pay less today and look to pay what can become quite a lot more in future, but funded from (hopefully) a higher income level and, once the mortgage is paid off, lower spending.
"Over time, Rolling Term can become expensive. For example someone aged 50 would start at a premium of £94.50pm for £500K cover. At age 60 this would rise to £275.30, to £897.30 at 70 and at £3,007.50 at age 80. The model is not too dissimilar to what we are used to with private medical insurance in some ways and, at later years, a policy set up to pay IHT could for example, even be part-funded by beneficiaries if they can afford to do so.
"The model also looks attractive for business protection needs, giving firms an approach that fits well with the uncertainties of business.
"In the right circumstances and for the right client this is a great option, and advisers can allow the client to choose between this and whole life or fixed term anyway. It’s quite retro in some ways – but that’s not always a bad thing!"