A guide to 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 policy holder. The size of the payout, however, depends on the type of policy (as well as the unique circumstances of the policy holder).

As the name suggests, with traditional increasing term life cover amount insured increases each year by a fixed amount for the length of the policy. Many people who opt for increasing term insurance choose to do so because it is designed to protect your policy's value against inflation (the rising cost of living).

 This could be an advantage if you’re looking to:

• Help to maintain your loved ones’ living standards
• Pay your children’s school or university fees
• 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, however the purchasing power of the same amount may gradually diminish.

An increasing term life policy takes changes to inflation into account, meaning that 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. However, 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, however it is usually an annual increase.

To see the effect of inflation for yourself, use the Bank of England’s inflation calculator. This tool won’t predict the future rate of inflation, however you can judge whether it is something you need to take into consideration when forward planning by looking at historic figures.

Post Office Increasing Term Life Insurance

As increasing term life insurance potentially offers the largest payout of term policies, it is probable that your monthly premiums will be higher than for decreasing and level term insurance. Unlike other forms of insurance whereby the premiums remain the same each month, increasing term cover premiums usually increase periodically.

Things you need to know

** 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 are 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. If you buy Post Office Life Insurance over the telephone, it is arranged and sold by Post Office Limited and Post Office Management Services Limited. If you buy Post Office Life Insurance online, it is arranged and sold by Neilson Financial Services Limited, following an introduction by Post Office Limited.