Income Protection

[padmaja]

Pge 3 of unit 1 , mentions "Unlike under private medical insurance, premiums do not usually increase with age, although inflation linking is common."
I understand this if IP event is triggered only due to acident. why is it true for sickness too.

next para in that section says "For example, this initial premium will increase with the age at entry." This implies that one of the rating factors is age.

can u explain. I am a student not from the UK market, so prdts might not be familiar to me.

 

[Charlie]

In answer to your first question, I think that's just the way it's usually done. It's true that the risk of illness will increase with age, but that might make premiums in later years too high, so it is common to charge a level (ignoring inflationary increases) premium. (Policyholders will be "overpaying" in early years and "underpaying" in later years.) This is common for other long-term insurance products too - for example, term assurance premiums are often level (and so do not increase with age).

One of the rating factors is age at entry. So if you buy a policy when you're 20 years old, your initial premium might be 10 (and this premium will increase with inflation over the term of the policy). If you buy a policy when you're 40 years old, your initial premium might be 25 (which will also then increase with inflation over the term of the policy). This higher initial premium reflects the fact that in the latter case, there have been 20 fewer years of "overpayment", so premiums have to be at a higher overall level throughout the policy term.