What is Increasing Term Life Insurance?
With any term policy, you’re covered for a fixed period of your choosing and increasing term insurance is no different. If you pass away during your chosen term, your family will receive a lump sum payout. Once your policy reaches the end of your chosen term, the insurance expires, and you’re no longer protected. With increasing term life insurance, the benefit amount that your loved ones will receive from the policy increases continually over time. In some cases, it rises by a fixed amount every year or so to help to keep in line with inflation. This way, the payout maintains its buying power over time.
It’s important to note that the rate of increase to the benefit amount and premium can vary by insurer, so it’s best to check their Key Facts document to find out exactly how it would work or for more information.
Types of Increasing Term policies
There are generally two types of increasing term life insurance: index-linked and traditional.
Index-linked Increasing Term Insurance is when the death benefit amount is increased using a rate of inflation that is tied to a certain index. This index could be the growth rate of Gross Domestic Product aka GDP – this is the sum (measured in pounds) of the value of goods and services produced in the economy.
Or it could be tied to the UK Retail Price Index. The rate of inflation is the change in price for goods and services over the years. Measures of inflation and prices include consumer price inflation, producer price inflation and the House Price Index.
Traditional Increasing Term Insurance is where you and your insurance provider agree on a specified rate at which the value of your policy will increase. The increase will be made on your policy anniversary every few years. This could be for example yearly, every 5 years or another time frame agreed upon by you and your insurer at a point of sale.
Who could need Increasing Term insurance?
There are lots of reasons why someone could benefit from an increasing term policy. Let’s look at some common scenarios where this type of policy could be ideal for someone looking for life insurance.
Tackling concerns about inflation
With inflation constantly on the rise, the buying power of your policy could reduce over time which could ultimately leave your loved ones vulnerable when you die. If you’re concerned about inflation affecting the value of your life insurance payout over the years, then this type of policy could be worth considering.
Securing protection on a budget
If you can’t afford a large policy at this point in your life, then an increasing term policy might suit you. Say you’re in the early years of your career, you may be able to afford a higher rate of premiums down the line. That’s why an increasing term policy could be ideal for someone who has just stepped onto the career ladder.
Protection against outstanding loans or debt
You may also be seeking protection for your loved ones against a large outstanding loan or debt. There are some common scenarios where an increasing term policy may be of use, for example:
- You have an increasing debt that you would like to protect your family from being left vulnerable if you die before it’s been paid off.
- You know that you will eventually be free from a substantial financial commitment later in life and you know you will be able to afford a higher rate of premiums a few years from now.
What’s the difference between increasing term insurance and other types of term insurance?
If you’re confused about the differences between increasing term insurance and other kinds of term insurance, let us briefly break it down for you.
With fixed term insurance, sometimes known as ‘level term’ life insurance, your premiums remain the same for the duration of your policy. There are no unexpected surprises and you can be sure that your family will receive the full benefit amount if you pass away during the policy term, as long as you maintain your policy and keep up with your monthly payments.
Decreasing term policies decrease over time. You pay the same rate of premiums for the duration of your policy while your benefit amount becomes smaller over the years. You could choose a benefit amount that aligns with a decreasing debt like a mortgage or large loan for instance.
Still a bit confused? You can check out our in-depth guide on the most common types of life insurance. You'll be able to get a clear idea of what the most common types of insurance are. This way you can make the best decision for you
How do I work out how much increasing term cover I need?
As with any life insurance policy, you should calculate how much you need before choosing a benefit amount. You can do this by deciding what you want the benefit amount to cover and for how long. So, for instance, if you want it to protect your family from being left to repay your mortgage, you could choose a benefit amount and a term that coincides with your mortgage repayments. If you want to protect your family until your kids can financially support themselves, then you need to calculate your family’s expenses per month and work from there. You could include things like education costs, car maintenance or household bills for example.
If you don’t have time to do the maths, you could use our Life Insurance calculator to help you find out what size benefit amount you might need. With some careful planning, you can help make sure you’re not overpaying or leaving your loved ones short when it matters most.
Bear in mind that the benefit amount grows over the years, so the later you pass away, the larger the payout your family could receive. So, an example of how this works is; if you have a policy worth £100,000 that is set to increase annually by 3%, your policy will be worth £103,000 the following year.
Choozi’s here to help
If you’re ready to start comparing life insurance, you’ve come to the right place. By filling out just one form, Choozi can help you to easily compare leading insurance providers in no time. To find out more about what we can do for you, compare policies with Choozi today.