Indexation with Life Insurance Policies

marathonic

For life insurance policies, when the premiums and insured amounts increase, do both increase by the exact same percentage or is there a sort of admin fee whereby the premium increases a slightly higher percentage?

dunstonh

marathonic wrote: »

For life insurance policies, when the premiums and insured amounts increase, do both increase by the exact same percentage or is there a sort of admin fee whereby the premium increases a slightly higher percentage?

premium and sum assured increases should be relative to each other normally.

marathonic

Thanks for the response. I've no intention of getting an indexed policy but was just interested - if the premiums increased by a higher annual percentage, it'd kind of make the longer term policies pretty poor value.

stephenni1971

dunstonh wrote: »

premium and sum assured increases should be relative to each other normally.

Wouldnt agree with this one. usually sum assured will go up with RPI and premium by RPI x a factor ( some use 1.2 or 1.4 ).

Pru its RPI +2.5 %.

You need to check which company you are with/ intending to go with.

marathonic

stephenni1971 wrote: »

Wouldnt agree with this one. usually sum assured will go up with RPI and premium by RPI x a factor ( some use 1.2 or 1.4 ).

Pru its RPI +2.5 %.

You need to check which company you are with/ intending to go with.

So if that were the case the long-term indexed products would be pretty poor value.

For example, an online quote I done for a 20 year old for £100,000 indexed life insurance came back at £64.17 p/a over 40 years.

For the same person for a non-indexed £200,000 policy, the cheapest policy is £90.48.

That means, at 2.5% RPI and a RPI+2.5% indexation of premiums, the premiums on the cheaper, indexed policy will have caught up on the non-indexed policy in 13 years. However, the amount of the benefit will not catch up until year 31.

Makes you wonder, are you better figuring out your level of protection required and going for an index linked policy or doubling your requirements and going for a non-indexed policy?

marathonic

By the way, I'm aware that this way of thinking goes against the whole life planning thing because your level of insurance doesn't match any need and is different in real terms every year.

stephenni1971

There shouldn't be any difference in the price of an indexed or non indexed policy/

marathonic

stephenni1971 wrote: »

There shouldn't be any difference in the price of an indexed or non indexed policy/

In the quotes that I did, it was just that the number of providers available for the non-indexed options were more, i.e. the cheapest indexed was L&G whilst the cheapest non-indexed was Aviva (again, this opens a whole other can or worms )

dunstonh

I only have one indexed case on my books and the increases seem relative. Although this is going back many years and that policy is no longer available for new business. I will defer to stephenni1971 whose area of speciality this is.

stephenni1971

Where are you getting your prices from? Most comparison sites don't handle things like indexation well and providers can drop of the results for this reason. Even though they do have a product that suits.

Even on the systems I use this is the case so I will always do some direct comparisons as well.

marathonic

stephenni1971 wrote: »

Where are you getting your prices from? Most comparison sites don't handle things like indexation well and providers can drop of the results for this reason. Even though they do have a product that suits.

Even on the systems I use this is the case so I will always do some direct comparisons as well.

I was using MoneyWorld for these ones.

Like I say, I've no intention of taking a policy as I'm fully insured but I was just interested.