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What is increasing term life insurance?

Find out more about increasing term life insurance

published: 01 November 2022
Read time: 15 minutes

With an increasing life insurance policy, your pay-out will increase the longer your policy is active. Our guide will outline how it works and whether it’s right for you.

How does increasing term life insurance work?

Increasing term life insurance is a type of life insurance policy with a benefit that will increase over time. The main reason for this is so that your pay-out isn’t affected negatively by inflation. At the same time, the cost of your policy will increase as well. 

How these increases are done will depend on your provider. The usual method is an annual review of your cover. Each year your pay-out will be increased in line with the Retail Price Index (RPI) and your premiums will be increased as well at a rate determined by your provider.

Here is an example of how this might work: 

At the start of your increasing life insurance policy, your life insurance benefit is £100,000 and your premiums start at £10 per month. Your provider has set the rate of increase for your premiums to 1.5 x RPI. 

One year after you take out your policy, the RPI rate is 3%. This means that your pay-out the next year will be increased by 3%: 

£100,000 x 103% = £103,000 

Your premiums are increased by 1.5 x RPI, so they will be increased by 4.5% 

1.5 x 3% = 4.5% 
£10 x 104.5% = £10.45 

At the start of your policy

After annual increase

Pay out: £100,000

Pay out: 103,000

Premiums: £10 per month

Premiums: £10.45 per month

At your next annual review, this new amount will be used to calculate the increase to your policy rather than your original amount. So, next year, your policy pay-out will be increased to RPI% x £103,000. The same applies to your premiums. 

Overhead image of couple looking at finances

What does increasing term life insurance cover? 

Life insurance will cover you for death during the term of your policy. If you pass away when your policy is active, a lump sum will be given to your beneficiaries or placed in a trust to be distributed if you have chosen the option to do so. 

Most increasing life insurance policies, however, will have a grace period at the start of the policy where a claim cannot be made. This period can range from a month to a year and will be outlined in your policy documents. 

Optional critical illness cover 

Some providers will give you the option of adding critical illness cover to your increasing life insurance policy in exchange for increased premiums. This type of cover will allow you to claim on your life insurance for certain types of serious health conditions, such as cancer, heart attack, or stroke. 

This extra cover may be subject to an increase in premiums alongside your life insurance premiums depending on the terms of your provider. This is something you should look for when reading your policy documents. 

It’s also useful to note that many life insurance providers will cover terminal illness as a standard part of your cover, allowing you to claim your life insurance pay-out if you have been diagnosed with a terminal illness. Conditions you are covered for will be outlined in your policy documents. 

So, in some cases, critical illness cover may not be necessary if you want to save some money on your policy. 

What are the limits to increasing life insurance? 

Most providers will have a maximum pay-out limit or a limit to how much they are willing to increase your cover. This limit can be applied to your annual increase or to the amount your pay-out can increase overall. 

This is something to look out for when you apply for a policy. You wouldn’t want to be taken by surprise if or when your providers put a cap on your increase ability.  

There will also be a limit to how long you can set the term of your policy. If you are looking into an unlimited life insurance policy with an increasing benefit, you would need to take out a maximum cover whole of life insurance policy, although this type of insurance works quite differently from term life insurance.  

Can I reject an increase to my life insurance? 

Most providers will allow you to reject an increase to your policy if, for whatever reason, you decide you don’t want it. However, there are limits to how often you can reject an increase. The standard is that you can only reject two or three annual increases in a row. If, after that, you still reject an increase, your provider may remove the option entirely and turn your policy into a level term life insurance policy.

What happens if I can’t afford my increased premiums? 

Your provider will outline the new cost of your premiums when you get your annual cover increase, so you will have the chance to reject the increase to your cover and premiums if you don’t feel that you can afford them. However, you cannot undo your decision to have your cover increased once you have accepted if you can’t afford the new premiums.  

Most insurance providers will usually give you a grace period of around 30 days for you to pay your life insurance premium. However, if you fail to pay once this period has ended, your policy will lapse, and you will be left without life insurance cover. Your policy will end and there will be no return on the premiums you paid into your policy up until this point.  

Some insurance providers may allow you to ‘reactivate’ your policy with the previous terms as long as you pay all the due premiums since your policy lapsed and cover the cost of any penalties. Providers might also ask you to undergo another medical check before they can restart your life insurance policy.  

Should I get increasing life insurance? 

Increasing life insurance is one of the more expensive types of life insurance, so it might not be suitable for everyone. There are some situations where you might want your life insurance cover to keep up with inflation: 

  • Cover funeral costs  

  • Cover your family’s bills and expenses 

  • Pay for the care of a dependent or loved one 

  • Help your children afford university or buy their first home 

Pros

Cons

Benefit increases with inflation

Premiums increase sometimes at a higher rate than inflation

Less expensive than whole of life insurance

Usually more expensive than level or decreasing term life insurance

No need for another background or medical check when your pay-out is increased

There is a maximum limit to your benefit

Compare term life insurance quotes online 

At MoneySuperMarket, we can’t help you find increasing term life insurance policies, but we can help you compare quotes for level and decreasing term life insurance if you decide that one of these is right for you. 

It’s quick and easy to compare. Simple answer a few questions from us, and we’ll fetch deals from the top UK providers for you to browse. When you’ve found one that’s right for you, all it takes is a click and we’ll send you through to your chosen provider to complete your application. Find great value cover in no time at all.