Advantage of youth comes to fore in life assurance

The older you are, the higher the premiums you will have to pay, writes Laura Slattery.

Life assurance is rarely top of anyone's shopping list. Some of us like to think we're immortal, while others among us can't quite pin down exactly why someone else should benefit financially from their death.

Mortgage lenders, however, force homeowners to buy a type of life assurance known as mortgage protection when they first draw down their loans. People under the age of 50 are required by law to take out this cover on their main home mortgage so that the outstanding loan will be cleared in the event of their death.

Parents with young children may also need to buy an additional life assurance policy known as term assurance.

If one partner dies during the term of the policy, the survivor could struggle to pay for childcare, education and other family and living expenses on one salary, even if the mortgage protection policy has taken monthly loan repayments out of the equation.

The life policy will give rise to a lump sum so that the survivors can avoid adding financial hardship to their grief. But all of this protection comes at a cost.

The Irish Financial Services Regulatory Authority (Ifsra) has published a survey on the premiums that first-time buyers in need of mortgage protection and people in need of separate life cover will pay.

The survey clearly points to the benefits of taking out life assurance at a younger age.

A male non-smoker aged 26 can get mortgage protection to cover a €250,000 loan over 20 years for €10 a month. The premium is guaranteed to stay the same during the policy.

However, if he waits until he is 36 before buying a home, mortgage protection will cost him at least €18.23 a month, or nearly €2,000 extra over the term of the loan.

And if he doesn't take out the cover until the age of 46, the premiums will be even greater, at a minimum of €42.38 a month.

This makes buying property almost €8,000 more expensive for male 40-somethings as it is for male 20-somethings.

Women pay less than men for life assurance because they have a longer life expectancy, but female homebuyers in their 40s will still pay over €5,000 more than women who are two decades younger.

There is also the risk that, as we get older, we are more likely to acquire what insurers euphemistically call an "adverse medical history".

For example, we may develop high blood pressure, which underwriters will view as a risk that we may later develop a potentially fatal circulatory disease such as a heart attack or stroke.

People who have certain medical conditions or who have suffered health problems in the past may be refused cover or asked to pay higher premiums - sometimes as much as three times the normal rates.

There is very little consumers can do to get around the problem of their age.

With post-boom property prices so high, it can take a long time for workers to save for their deposits and rise the career ladder far enough to earn a salary sufficient to borrow a meaningful mortgage.

Likewise, many people do not have the opportunity to have children until later in life and simply won't have the need to buy term life assurance until they do. Whatever age people do buy life assurance, they should remember the financial regulator's number one consumer tip: shop around.

"You are not obliged to buy mortgage protection from your mortgage lender or broker, so compare what other providers are offering," says Mary O'Dea, Ifsra's consumer director.

First-time buyers often don't realise this and simply buy whatever the lender is selling.

"Many mortgage application forms have the life assurance application form printed in the same booklet so it could almost appear that the transactions are connected," says mortgage broker Liam Ferguson of Ferguson & Associates.

But acquiescing to the convenience of buying the mortgage lender's policy could cost thousands over the term of the policy.

The three biggest lenders - Bank of Ireland, Permanent TSB and AIB - are all tied to their own life assurance companies. None of these companies gave the lowest mortgage protection quotes in any of the categories surveyed by the financial regulator, and Ark Life, AIB's life assurance arm, was in fact the most expensive for younger males.

Out of the 12 mortgage protection quotes sought by Ifsra, Eagle Star managed to offer the cheapest premium 11 times.

The higher premiums for older applicants make it difficult for holders of expensive life assurance and mortgage protection policies to switch to cheaper policies later on.

Ifsra's survey showed that even the cheapest mortgage protection policies available to applicants aged 36 cost more than the most expensive policies on sale to 26 year olds, suggesting that cancelling a bad value policy in favour of a good value one is only feasible within the first few years of the policy.

If you buy the lender's policy, it will also restrict you later on if you decide to switch your mortgage to a new lender. The existing lender will cancel your policy and you would have to apply for a new one and pay higher premiums based on your older age.

However, if you arrange separate cover, you can automatically transfer the policy to a new lender.

Choosing insurers carefully is even more important for the 4 per cent of life assurance applicants who are charged loaded premiums due to a past or present health problem.

The companies that offer the cheapest ordinary rates might not be the cheapest for people with adverse medical histories, and the chance that they may be rejected for cover completely means that it will be a good idea to use the services of a broker, who should submit a handful of applications simultaneously to a variety of insurers.

The good news is that, since the early 1990s, when actuaries' fears of widespread HIV infection in western countries subsided, life assurance premiums have actually come down.

As mortality rates are improving, premiums should stay reasonably affordable. However, the effects of rising obesity rates could put pressure on insurers in the future and make them more nervous about selling policies at guaranteed rates.

Further details of the financial regulator's survey, including a guide to life insurance, are available from the its consumer helpline on lo-call 1890 777 777, at www.itsyourmoney.ie and at its consumer information centre at College Green, Dublin 2.