Generally speaking many people are aware of Level Term or Decreasing Term Life Insurance and the many benefits they offer. In today’s guide we take a look at the potential benefits of a different fixed term policy type. Although it is not as common as Level Term or Decreasing Term protection. Increasing Term Life Insurance helps many people to provide term protection for their families.
In this Guide
What is Increasing Term Life Insurance?
Increasing term insurance is a fixed term Life Insurance policy. That is usually used when individuals need a higher potential claim payment over the length of the policy. This type of Life Insurance protection offers an increasing death benefit throughout the policy term. This policy type benefits from a choice of being linked to either the Consumer Price Index (CPI) or follow the rate of inflation. By choosing an Increasing term policy it will increase the potential claim pay-out higher by a certain percentage each year. Some Life Insurance providers have percentage caps per year or over the length of the policy.
It is important to read the small print within the policy documents to ensure that you aware of any limitations. Although it is not as widely used as Level Term or Decreasing Term Life insurance. This is because it requires the policyholder to pay an increased monthly premium to match the annual percentage. However, an Increasing Term policy can be a very beneficial option if your circumstances require the extra level of protection.
What Are The Advantages of Increasing Term Life Insurance?
One of the key advantages of buying this policy type is that it allows policyholders to increase the level of Life Insurance for the future. By purchasing this policy type it will remove the impact of inflation on a potential claim payment. Unlike Level Term Life Insurance which will pay a fixed sum to your family when you pass away. Or Decreasing Term protection which reduces over time to track a repayment mortgage. Both are susceptible to diminishing returns. This is caused by the cost of living and the overall value of the British pound.
For example, if you purchased a £250,000 Level Term Life Insurance policy today to protect you. Hoping to provide for your family if you pass away. Fast forward 20-30-40 years and the legacy that you had hoped to create for your family has been eroded away because of inflation. A Decreasing Term protection will also diminish over time but that is what it is supposed to do.
By purchasing an Increasing Term Life Insurance Policy, it will enable you to increase the level of protection you need. This allows the future provision for your family and the financial protection they will need in the future.
To fully benefit from an Increasing Term protection policy. It is advisable to obtain a policy when you are young fit and healthy. The initial level of protection does not have to be at the same sum insured as Level or Decreasing Term. This is because the amount of protection you have in place will increase over the long term.
As family circumstances change, which may include young children, buying a bigger home or moving up the career ladder. An Increasing Term protection policy could become the better solution for your families long term needs. By creating a growing legacy for your family it will allow a better standard of living. Pay for education or help with the day to day costs at home.
Another advantage of buying this policy type whilst you are still young is your ongoing health. As we all get older, we become more susceptible to long term medical conditions. Which if applying for Life Insurance protection will increase the monthly costs. With an Increasing Term Life Insurance policy. Any increase to your sum assured will be based on your health and medical status when buying the policy.
Disadvantages Of Increasing Term Life Insurance
A key disadvantage of an Increasing Term Life Insurance policy are the assumptions made at the time of purchase. As mentioned above, a Life Insurance provider will view the details provided to them. So this would mean if you have a job deemed as high risk. Or if you have a medical condition the monthly premium may become unsustainable.
Another disadvantage, is due to individual circumstances. Because many people choose to buy Life Insurance when they need it. Rather than planning for the long term future prior to becoming a higher risk. An example of this situation is the purchase of your first home, the arrival of a child. Or the diagnosis of a medical condition. These potential situations would cause an insurer to potentially charge a slightly higher monthly premium.
The largest disadvantage of this policy type is that it will only be effective for a fixed period of time. Unlike other Life Protection policy types like Whole of Life. Which will protect you until you pass away without time restrictions. Also because it is a fixed term policy, if you survive the term of the policy it will leave you and your family unprotected.
At Life Insurance Cover we compare all levels of Life Insurance available to you. We can help you narrow down the search for the Best Life Insurance for your individual circumstances.
Different Types Of Increasing Term Life Insurance
Within the UK Life Insurance market there are two different types for this type of policy:
Traditional Increasing Term Life Insurance: This policy type was created to increase the sum assured. At a specified rate agreed between a Life Insurer and the policyholder. The increase is usually made on the annual anniversary of the policy. However, some providers do offer anniversary increases at 5 year increments.
Index-linked Increasing Term Life Insurance: Although very similar to the traditional policy type. The main difference between the two is that this policy type is usually tied to consumer price index (CPI).
Cost Of Monthly Premiums
All Life Insurance companies use many different methods to work out a monthly premium for all the different types of policies available. All Life insurance premiums are calculated on the information provided. This means that some policies will be more expensive for higher risk policyholders. Because Life Insurance Cover is a whole of market broker. We are able to compare all of the providers for you. Allowing you to choose the right level of protection for you and your family. Including Increasing Term, Level Term and Decreasing Term protection.