Life Insurance & Indexation

simon.white

Hello all,

Have recently applied for Family Income Benefit-type Life Assurance for myself and wife with L&G.

I'd chosen to index the policy and was happy with the way it was described over the phone and on key features, but I'm a little surprised at the actual policy wording:

"The amount of cover including any increases already made will increase in line with the change in the
Retail Prices Index (RPI) over a 12 month period...

...Your premium will increase in line with the change in RPI multiplied by 1.5"

Why the multiple of 1.5? This seems quite unfair. Is it just a rip-off, or is there a genuine reason for the indexation to work like this?

I can't quite wrap my head around this - if it's unfair I think I'll just walk away from the policy.

Thanks in advance,

Simon

weighty1_2

There are many companies who increase the premium at a higher percentage rate than which they increase the benefit. There's 2 reasons for this:

1) They don't ask for any further medical evidence even though they are increasing your cover every year and in reality you are likely to become a bigger risk over time.

2) The plan continues to be index linked even during the claim period which is again an additional risk factor for the provider.

That said, there are companies who increase both premium and sum assured by the same percentage.

ACG

I used to be an account manager for a life office, the company i worked for increased he premium at the same rate as the cover. You would be surprised at how many brokers were not aware that the premiums increased faster than the cover with some providers!

Its good that you have picked up on this as its an important factor when comparing costs.

kingstreet

I do have an explanation of how/why this happens. I'll dig it out "when the streets are aired" as my Gran used to say...