3.2.4 Increasing Term
Increasing term insurance is commonly used as a hedge against inflation. Increasing term insurance is used to ward off decreased purchasing power.
The death benefit actually increases with time. The amount of increase may depend upon factors such as the Consumer Price Index (CPI), or it can be designed to increase in specific amounts or in percentages of the original death benefit. These policies can be set up as renewable for specific five-year increments (5, 10, 15, 20), but are mostly found on yearly renewable term policies.
One of the advantages of this type of policy is that there is no medical underwriting at renewal. Now let's take another look at the scenario between Mike, Bev, and their home.
Mike has looked at the other two options of term insurance and decides he might as well investigate a third option. If Mike purchases the same amount of coverage on an increasing term contract, Bev's protection will increase as his health will typically decrease with age. Now, hopefully he will live a long time; but as he ages, so do both Bev and the house. $100,000 may not be enough in the long run. Bev's health may decrease also so that she will need additional funds after the mortgage is paid off. The house may need repair, perhaps substantial, and the cost of living has risen so that she may need additional funds just to keep up. By purchasing an increasing term policy, Bev will not only have enough money to pay off the mortgage, but she could also live a more comfortable life.
Any of these scenarios could be beneficial; it all depends on the client's preference once all options have been examined. Keep in mind also that the coverage period can be extended on most of these policies.
1 |
Section 3.2 ReviewTerm life policy premiums are based on: |
2 |
Level term policies do not fluctuate in face value. |
3 |
Decreasing term policies fluctuate in face value. |
4 |
The death benefit under an increasing term policy increases with time. |
