Life Insurance with Indexation

nicol

Hi,

I'm trying to sort out life insurance for myself and my OH, which will be completely seperate to any insurance we have for mortgage etc. We want the insurance to be index linked but I'd like to know how insurance companies decide how much to increase the premiums by annually. Is it linked to the Consumer Price Index or do they make up their own version of same? Also does the benefit go up in direct proportion to the premium increase, i.e. will the benefit increase by 5% if the premium increases by the same amount.

Thanks in advance.

eagle_i

It depends on the insurance company, some have life assurance plans with indexation of 3% p.a. or 5% p.a. in respect of the sum assured (i.e the amount of life cover). With regard to premium, again this differs with each company while one has a 3%p.a. indexation option in respect of both the cover and premium, others have 5%p.a. indexation in respect of the cover and premium, however, some companies increase premiums at a rate of 7.5%p.a. or 8%p.a.

Talk with an independent financial adviser, he/she will provide a comparative illustration which will clearly set out the indexation levels for each company.

Pablo Sanchez

nicol wrote: »

Is it linked to the Consumer Price Index or do they make up their own version of same? Also does the benefit go up in direct proportion to the premium increase, i.e. will the benefit increase by 5% if the premium increases by the same amount.
QUOTE]

You may be able to index it to the CPI, however there may be a clause where if the cpi is low (or negative) that it will increase by some minimum anount, say 3%

You used to be able to increase benefit by the same % as the premium increase, however now your more likely to pay eg 5% premium increase for 3% cover increase. Please also note that the cover increase will be a % or your original sum assured.

It might not seem fair but on the other hand the life company is taking on an increased risk without any fresh medical evidence and the level of cover can really build up over the years.

Atlantic Dawn

Usually on most policies sold in Ireland it's a 5% increase per annum in the cover amount for an 8% per annum increase in the premium. Consumer price index and inflation is not taken in to account.

Another option you might want to look at is a conversion option which allows you increase your cover amount through the live of the policy without the need for medical evidence. It's about 4 or 5% more expensive.

eagle_i

Atlantic Dawn wrote: »

Another option you might want to look at is a conversion option which allows you increase your cover amount through the live of the policy without the need for medical evidence. It's about 4 or 5% more expensive.

Sorry Atlantic Dawn, I would like to correct you on the above statement.

A conversion/guaranteed insurability option allows you to extend the term of the policy NOT increase the amount of cover. eg if you have cover in place of €100k at the time of the conversion in pollicy A, you extend the policy by converting it to policy B without further medical evidence up to €100k. Any amount of cover in excess of €100k is subject to a full proposal and medical underwriting.

You are correct regarding the additional cost of the conversion option which must be taken out at the time of effecting the initial policy.

Premiums for the extended term (ie. at the time of the conversion) are subject to the persons age at that time.

lawred2

Atlantic Dawn wrote: »

Usually on most policies sold in Ireland it's a 5% increase per annum in the cover amount for an 8% per annum increase in the premium. Consumer price index and inflation is not taken in to account.

Another option you might want to look at is a conversion option which allows you increase your cover amount through the live of the policy without the need for medical evidence. It's about 4 or 5% more expensive.

8% increase per annum in the premium

?

Over say 30 years; is that not a 900% increase in premium by the final year?

Henry Ford III

Big variations in premium and sum assured indexation. Ideally they should increase at the same rate.

For Caledonian Life benefits increase at 3% and premiums increase at 4%, for New Ireland benefits and premiums increase at 3%, for Irish life benefits increase at 3% and premiums increase at 5%, for Aviva benefits increase at 3% and premiums increase at 4% p.a. for all others benefits increase at 5% but premiums increase annually as follows: Friends First 8%, Zurich Life 7.5%.