A Guide To Life Insurance - Term Assurances In 2016 ....


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Term Assurances In 2015 ...

Term assurances today may also contain an option, or more accurately a series of options, to increase the sum assured.

Thus an FIB policy for £211,000 p.a. over 25 years may allow the policyholder to increase the benefit assured up to a maximum of £24,000 per annum in four stages over 20 years, with the maximum increase at any one option date limited to the amount of the original £211,000.

Someone taking out such a policy could increase the sum assured to £22,000 after five years and again to £23,000 after another five and, if he wished, to £24,000 after a further five years.

An option of this type could add 10-15% to the cost of the premiums.

An alternative to increasing the benefit by jumps at option dates is escalating term (or FIB) where the sum assured (or benefit per annum) rises each year by a specified percentage, while the annual premium remains the same.

The drawback is that even a modest rate of escalation, say 3% or 5%, pushes up the premium per initial sum assured sharply compared with level benefit plans, and the longer the term chosen the greater this effect will be.

Over 10 years an escalation rate of 5% will raise the level sum assured from £211,000 to £211,630; over 20 years it would rise to £22,650, and, since the mortality risk is always rising throughout the term, it is not surprising that an escalation rate of 5% per annum requires a 15% increase in the level premium on a 10-year term. As for FIB, a 5% escalation rate raises the annual premium by up to 35%.

An alternative is for the premium itself to rise each year along with the sum assured; one company, for example, uses the Retail Price Index to adjust both benefit and premium.

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On the whole, it would appear more practical to use an option-inclusive plan and review your commitments at regular intervals rather than to undertake an open-ended commitment to a policy which may not correspond with your needs in future years.
Another option that has become increasingly popular in recent years is convertibility.
Convertible term assurance is level term assurance which may be converted to an endowment or whole-life contract, usually at specified dates or within a certain........ see: click here for Further Term Assurances Example


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