By now you should realise the importance of life insurance even if you are healthy and especially if you are a new parent, but which option should you pick? There are so many different types of life insurance out there that it can be confusing to know which is best for you. Today I’m going to explore what increasing term life insurance is as it may be the best option to ensure the value of your life insurance lump sum doesn’t decrease with inflation.
Why you should consider increasing term life insurance
There are many affordable whole life insurance quotes you can easily find online, but what is the difference between the types of policies that exist?
Many of the policies will pay out a single lump sum of cash in the event of the death of the policyholder, however, they will pay out the exact amount the policyholder was covered for. In many cases, this will be sufficient, but if the policy has been held for a long time, think decades, then the lump sum will no longer be as valuable as it was when the policy was first taken out.
This is because of inflation (the rising cost of living) and it means your loved ones may not be able to make the money go as far when they receive it as was originally planned. If the rate of inflation worries you and you’d like your life insurance lump sum to retain the same level of value, then you will need to choose increasing life insurance.
What is increasing term life insurance?
Rather than the sum being fixed at the amount when the life insurance policy is taken out, the cover amount will increase by a fixed amount every year for the duration of the policy, perhaps in line with inflation or by a fixed arranged amount. This helps to ensure the overall lump sum is not devalued in the future due to rising living costs.
This can be useful if you want to ensure your loved ones can maintain the same standard of living in the future, even when things cost more. It can ensure your family can afford rising mortgage costs if interest rates rise as well as rising education costs in the future.
Whatever you take into account for your life insurance cover amount now and in the future, you need to consider that these costs will rise every year and could be substantially more in the future.
Things to consider when thinking about an increasing term life insurance
Whilst increasing term life insurance will usually offer the largest payout of any life insurances, given the cover amount rises throughout the policy, this does mean it can be the most expensive option compared to other types.
Most people will qualify for increasing term life insurance, but there are some exceptional circumstances that people may not, such as those looking for life insurance for inmates or people who are age 90 or over.
Your monthly premium may not be fixed and may rise over time.
Pros and cons of increasing term life insurance
To round up, here are the pros and cons of increasing term life insurance:
- Your cover amount will be protected against inflation
- On the event of your dath and with a satisfactory cover amount, your families standard of living need not change if the cost of living rises
- The premium may rise each month
- The premium may be higher than other life insurance options
- It may not be available to everyone