Guaranteed or reviewable life insurance premiums?

Most life insurance policies are sold on one of two premium structures. With a guaranteed premium, the price you pay each month for your cover is set in stone for the entire term of the policy¹. With a reviewable premium, your monthly payments start out at a lower level, but the insurer has the right to periodically review them and may opt to increase them¹.

That is the whole trade in one line: certainty costs more up front, and a lower starting price buys uncertainty later. Reviewable policies have premiums which can alter at the review dates within the policy term, typically every 5 years². Guaranteed policies have premiums which remain the same throughout the policy term².

The choice is not available on every policy. It appears on term assurance, whole of life cover, critical illness cover and income protection, and the option you are offered depends on the policy you choose³. On long policies, whole of life in particular, the difference between the two structures compounds over decades rather than years.

Guaranteed premiums: the cost is fixed for the whole term

A guaranteed premium is calculated at the start of the plan and will not change unless the amount of cover is changed or cover is chosen on an increasing basis⁴. Insurers describe the same rule in slightly different words: the amount you pay for your cover will be fixed until the end of your policy³, the monthly cost is fixed and will never increase², and premiums remain the same throughout the policy term².

What that buys is a known cost. A household budgeting over the full term of the policy can put the figure in a spreadsheet and leave it there. The insurer carries the risk that claims cost more than expected, that people live longer than assumed, or that investment conditions worsen. That risk transfer is what the higher starting premium pays for.

The guarantee has edges. It applies to the policy as written, not to every change a policyholder might want to make. Increasing the sum insured, adding a benefit, or moving the cover onto an increasing basis can all trigger a recalculation, and the new premium is set on your age and health at that point. A guaranteed premium is therefore best understood as a guarantee on the policy you bought, not on any policy you might later turn it into.

Guaranteed premiums are also not the same as guaranteed acceptance. A guaranteed premium describes the pricing structure of a policy that has been underwritten. Guaranteed acceptance is a different thing: specialist, non-medically screened policies offer guaranteed cover for anyone, but they are often more expensive, with limited term length or total sum insured⁷. Those are usually found among over 50s plans, not standard term cover.

Reviewable premiums start lower but can rise at each review

A reviewable premium begins below the guaranteed equivalent for the same cover. Insurers will periodically assess and adjust your premiums based on risk and economic factors, such as interest rates or advances in medical treatment³. The insurer's right to do this is written into the policy: with reviewable premiums, the insurer has the right to periodically review your premiums and may opt to increase them¹.

The review looks at the insurer's financial position and its expectation of paying future claims¹. In practice that means the premium can move because assumptions about how long people live have changed, because the cost of providing life assurance has risen, or because the fund or basis behind the policy is not performing as assumed. On one flexible whole of life plan, the provider states that if you chose the maximum basis option, your premium is likely to increase significantly at each review, and that the increase could be because the assumed growth rate is not achieved or the cost of providing life assurance increases⁸.

Reviewable premiums are not the only structure where the monthly cost moves. Low start life insurance policies increase the monthly premium throughout the term of the policy, and these will appear cheap on comparison sites⁹. Increasing life insurance works differently again: you pay higher premiums over the length of your cover, normally reviewed annually¹⁰. Age-costed income protection premiums start low but get higher as you get older¹¹. Each of these is a distinct structure, and a quote that looks cheap at the start may be one of them rather than a reviewable premium.

Guaranteed or reviewable: how each one behaves over time

Over a short term, the two structures can look similar. Over a long one they diverge, and the divergence is not symmetrical.

The asymmetry matters. A guaranteed premium cannot rise, so the worst case is the price you already agreed. A reviewable premium can fall in theory, and some term policies state that premiums might be reviewed every five years or so, when they can go up or down¹³. But the reason an insurer reviews is to check that the premium is enough to cover the risk, and the direction of travel on a long policy is more often upward than down.

There is also a threshold that softens small movements. On one insurer's reviewable terms, if at your review we work out that your premium should change by less than 5%, we won't change it⁵. That protects against trivial adjustments but not against a substantial one.

The practical question is what happens at the review if the new premium is unwelcome. On some reviewable policies, if you don't accept the increase, your cover will fall¹². That is a materially different outcome from simply paying more, and it is the point at which a reviewable structure can leave a household with less cover than it planned for, at the age when replacing it would be most expensive.

Which types of cover offer each option

The choice of premium structure is not universal. It depends on the policy and the insurer.

• Term assurance. Premiums usually stay the same for the full term of the policy, and in some cases they might be reviewed every five years or so, when they can go up or down¹³. Level term, decreasing term and increasing term are the main variants, and the premium pattern differs between them.
• Family income benefit. Sold with guaranteed premiums, fixed for the whole term, or reviewable premiums, lower initially but which may be increased on regular review¹⁴.
• Whole of life. Premiums can be guaranteed, where the future cost is known, or reviewable, where the future cost is unknown¹⁵. Standard whole life cover is offered with either, and the provider's own guidance is to discuss your preference with an adviser first¹⁶.
• Critical illness cover. Choice of guaranteed or reviewable depending on the type of cover¹⁷. Guaranteed premiums mean the same monthly payment for the life of the policy and usually cost more to start off with; reviewable premiums are reviewed usually every five years and are likely to go up over time¹¹.
• Income protection. Guaranteed premiums, reviewable premiums reviewed usually every five years, or age-costed premiums where payments start low but get higher as you get older¹¹.

The pattern is that the longer the policy is designed to run, the more the choice matters. A level term policy has a defined end, and the number of reviews a reviewable premium would face is finite and known. A whole of life policy has no end date, so the review schedule runs indefinitely.

Whole of life cover: why the choice matters most on long policies

Whole of life insurance is a life insurance plan with no end date, covering you from the moment the plan starts¹⁸. The cover lasts for the whole of your life, so the cash sum from a valid claim will be paid whenever you pass away, rather than during a specific period of cover¹⁹. Whole-of-life policies are ongoing policies that pay out whenever you die, providing you keep paying the premiums²⁰.

That open-ended structure is exactly why the premium basis carries more weight here than on term cover. A reviewable premium on a policy with no end date has no final review, and each review is a fresh opportunity for the cost to rise. Some whole of life policies get reviewed after a set time, usually 10 years²¹, which is a longer interval than the five years typical on other reviewable policies but still recurring for as long as the policy runs.

Cost is the other half of the picture. Whole of life insurance premiums are more expensive than term life insurance policies, typically because the policy ensures a guaranteed payout¹⁶. Whole life insurance premiums are usually higher than term policies²², and the cover is generally more expensive than term life insurance because of the guaranteed payout²³. Whole-of-life insurance is more expensive than term insurance policies, which only pay out if you die within a certain timeframe⁹.

Put together, a reviewable premium on a whole of life policy means a higher base cost than term cover, an indefinite review schedule, and a review outcome the policyholder does not control. That combination is why the premium basis is worth settling before the policy is taken out rather than after the first review letter arrives.

What happens at a review, and what to do if the premium rises

A review is not a formality. The Financial Ombudsman Service has published a case study about a whole of life policy that was reviewed without the customer's knowledge: the policy had been reviewed three years earlier, and the provider had assumed she wanted to keep premiums the same and reduce the level of cover¹². The customer had not understood that the review had happened or what the default outcome was.

That case illustrates the two things a policyholder needs to know at each review: that the review is taking place, and what happens if no instruction is given. Where a provider assumes a default, the outcome can be a change to the cover rather than the premium, which is easy to miss if the letter is not read closely.

If a reviewable premium rises, the options are limited but real:

1. Pay the increased premium and keep the cover as it is.
2. Accept a change to the cover where the policy allows it, which on some policies means the cover falls if the increase is not accepted¹².
3. Use the fund value where the policy has one. On a flexible whole of life plan, the choice at review is to pay the increased premium or use the fund value⁸.
4. Let the policy lapse, which ends the cover. Before doing this, check whether the policy has a cash-in value or a paid-up option, and take advice if it is long-standing or held in trust.

Cancelling is a decision with consequences beyond the premium. Cover taken out years ago was priced on the health and age of the policyholder at the time, and replacing it later means a new application and fresh underwriting. For anyone whose health has changed since, the existing policy may be the only one available on the terms it was written.

Where to get help

Premium structures are set by the insurer and written into the policy terms, so the first place to check what applies is the policy document itself. It will state whether the premium is guaranteed or reviewable, the review dates if it is reviewable, and what happens at a review.

If a review has been handled in a way that seems wrong, or a change was made without clear notice, the insurer's complaints process comes first. If that does not resolve it, the Financial Ombudsman Service can look at complaints about protection insurance, including long-term care insurance and whole of life policies²⁴. The ombudsman service is free to consumers.

For general guidance on how protection policies work and what to compare before buying, how life insurance works and how life insurance premiums are worked out set out the wider picture. Anyone weighing up whether a policy is worth keeping, particularly a long-standing whole of life plan, can get free and impartial guidance from MoneyHelper before making a decision.