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What is increasing term life insurance?
A life insurance policy of any kind is designed to pay out an amount of money upon the death of the policyholder. The size of the payout depends on the type of policy and the policyholder’s unique circumstances.
As the name suggests, with traditional increasing term life cover the amount insured increases each year by a fixed amount for the length of the policy. It’s designed to help protect the policy value against the rising cost of living, inflation. Read more about inflation from the Bank of England.
This could be an advantage if, after you’re gone, you want to:
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Help maintain your loved ones’ living standards
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Pay your children’s school or university fees
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Continue to make mortgage payments
How does increasing term life insurance work?
If someone took out a life insurance policy that offered a payout of £100,000 today, the effect of inflation may diminish the relative value of that sum over time. Its numerical value would still be £100,000, but the purchasing power of the same amount may gradually diminish.
An increasing term life policy takes changes to inflation into account, meaning your payout amount rises alongside the inflation rate.
With small sums of money and over brief periods of time, you might not notice the effect of inflation. But, with large sums of money and over periods with lengths as long as life insurance policies often are, the effect can be considerable.
Insurers will periodically raise premiums to meet the increased payouts. How they do this will vary by provider, but it’s usually an annual increase.
To see the effect of inflation for yourself, use the Bank of England’s inflation calculator. It won’t predict the future rate of inflation. But you can look at historic figures to judge whether it’s something you need to take into consideration when forward planning.
Why should I get increasing term life cover?
Thinking of taking out a long-term policy with a large payout? Inflation’s likely to affect you. So you might want to consider increasing term life cover.
It might be important to protect the size of your payout, such as for a debt repayment or large purchase. In this situation, increasing cover can provide peace of mind by helping protect a payout from the long-term effects of inflation.
It’s important to assess your needs when considering any life insurance policy. Much of the decision will depend on what you intend your payout to cover.
Typically, increasing term life policies are used to leave a lump sum for loved ones that adjusts, protecting against the rising cost of living by increasing by a fixed rate each year. This could help pay off an interest-only mortgage. It could give the kids a chance to get their foot on the property ladder. Pay towards educational costs. Or simply to contribute towards living expenses when you're no longer around.
If you have a sizeable estate and know you’re liable to pay a large amount of inheritance tax, you might consider increasing term life cover to help offset this bill.
There are also costs associated with your death that you might not have considered. For instance, the costs of your funeral or professional executors of your will if you don’t appoint your own. This sort of situation may require a more flexible payout, which is the case with increasing term insurance.
Whatever your reasons for leaving a legacy behind, making provisions early can help to give peace of mind to you and the ones you love.
Are there other benefits to an increasing term policy?
With increasing term life insurance, the payout keeps pace with the rising cost of living.
As with level term cover, the payout could cover a wide range of living expenses, such as a new house or growing family.
Increasing cover option
Here's a quick summary of how the increasing cover option works on Post Office Life Cover.
| What's it for? | Providing for your loved ones and reducing the impact of inflation on the money you leave if you die |
|---|---|
| Fixed cash sum payout? | No, the pay-out will automatically increase each year in line with Retail Price Index (RPI) up to a maximum annual increase of 10% |
| What's the maximum payout? | Up to £750,000^ (depending on age) |
| Age limit | Ages 18-70 |
| Are health-related question asked? | Yes |
| Is terminal illness cover included? | Yes |
| Can I add critical illness and children’s cover to my policy? | Yes
(for an additional cost) |
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Decreasing term life insurance
You might decide you’re only concerned about paying off your repayment mortgage or another scheduled payment loan or debt. If this is the case, consider decreasing term life cover. The payout decreases over time in line with your debt.
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Level term life insurance
If you simply want your loved ones to have money to do with what they wish after you’ve gone or cover the costs of your funeral, a level term policy may be a good choice for you. Level cover may also be an option if you wish to cover an interest-only mortgage.
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Over 50s life cover
If you’re between 50 and 80, you’re eligible for over 50s life cover. This is whole-life cover and different from term cover, which is in place for a specific amount of time. Potential payouts are much smaller than with term policies, so not designed to help pay a mortgage or other sizeable debt. But it can be put towards a funeral or used to leave a gift for your loved ones when you’re gone.
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Other considerations
As increasing term life insurance potentially offers the largest payout of term policies, it’s likely your monthly premiums will be higher than for decreasing term life insurance and level term life insurance.
Unlike other forms of insurance, for which premiums stay the same each month, increasing term cover premiums usually increase periodically.
Post Office life cover options
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Life Insurance
Choose between level, decreasing or increasing term insurance, each designed to offer you peace of mind based on your circumstances.
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Over 50s Life Cover
If you're aged between 50 and 80, we could help you leave a cash sum for your family or towards your funeral costs.
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Things you need to know
*0330 & 0345: Calls to 03 numbers will cost no more than calling a standard UK number starting with 01 or 02 from your fixed line or mobile and may be included in your call package. Calls may be monitored or recorded for training and compliance purposes.
^ Your cash sum is dependent on your age, smoker status, length and type of cover and your personal circumstances at the time you apply.
Post Office Life Insurance offers up to £750,000 cover, depending on your age, for customers who are UK residents aged 18-70 at the start of the policy. The minimum term is 5 years and cover must end before your 90th birthday.
We won’t pay a claim on death if it was as a result of suicide or intentional self-inflicted injury within 12 months of the start date of your policy.
Critical Illness Cover can pay an extra cash sum if you’re diagnosed, during the term of your policy, with one of the four critical illnesses covered that meets our definition.
We won’t pay a claim on terminal illness if you don’t meet our definition of terminal illness; or terminal illness is caused by intentional self-inflicted injury within 12 months of the start date of your policy. The full definition of terminal illness can be found in the terms and conditions.
We won’t pay a claim if you don’t keep your payments up to date as you will no longer be covered under the policy. If you don’t tell us something or give us incorrect answers to our application questions that affects your cover, we may reduce the amount we pay for a claim or at worst cancel your cover and not refund your monthly payments. If you’re a UK resident aged between 18 and 70, you can apply for cover. Please see terms and conditions for further details about the restrictions that apply.
Post Office Life Insurance is underwritten and administered by Scottish Friendly Assurance Society Limited. Neilson Financial Services Limited assist in the administration.