Life Insurance Guide | Insurance Help Product Information | Increasing Term Assurance

Because of inflation, a term assurance policy with a level sum assured gives a reducing amount of real cover as the value of money declines year by year. Consequently, attempts have been made to combat this by introducing term assurance policies with some form of escalating sum assured.

Some offices offer policies where the sum assured can be increased each year by a set percentage (often 10%) of the original sum assured. Other offices have short-term policies which can be renewed at the end of the term for a higher amount. For example, the holder of a five-year level term assurance may have the right at the end of the five years to effect a new policy for a sum assured of up to 50% more than the original.

Whenever the sum assured is increased, the premium is correspondingly raised. In addition, because the life office is giving the right to increase the cover substantially without any medical evidence, the initial premiums for these increasable contracts are higher than those for ordinary level term assurances for comparable sums assured. Furthermore, short-term policies with renewal options usually provide for the premium to be based on the life assured’s age at renewal. Some offices have guaranteed insurability options enabling the sum assured to be increased on events such as marriage, birth of a child, or increase to a mortgage.

Many of these policies incorporate conversion options, with cover usually continuing up to a maximum age of 60 or 65.