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TheMoveChannel.com | Escalating Family Income Policies

A term assurance with a level sum assured provides a decreasing level of cover in real terms, and this is equally true of family income policies. Thus, a number of offices market family income policies where the income benefit increases automatically, at a pre-arranged rate, during the term of the policy.

The income benefit might increase each year by 3%, 5% or 10%, simple or compound. In some cases, the increases stop if a claim arises and ins some cases they may continue throughout the claim-paying period. The latter type will be more expensive, but will be a better foil for inflation. Either type will be more expensive than a level family income policy. Premiums will be level, even though the cover increases.

Even escalating policies cannot maintain the real value of the cover if the rate of inflation exceeds the rate of escalation. In common with term assurances, the solution is to index-link and a few companies have offered an annually index-linked family income policy.