When you take out life cover, you can choose whether or not to increase your benefits, and, by how much to increase to increase each year.
Remember that as your life cover increases, your premiums will also increase.
If you choose not to increase your benefits, your cover will potentially not keep up as cover needs increase.
To contain your premium increases, you can choose to increase your cover by a fixed amount each year rather than keeping up with inflation.
While your life insurance and lump sum disability needs may decrease each year as you grow older, remember that your income protection benefit generally does need to keep up with inflation.
In fact, it may need to increase by more than inflation if your income increases because you were promoted, or you received a merit increase or grew your business.
Ad hoc increases subject to reassessment
You should be aware that you may not be able to make an ad hoc increase to your cover without the life insurer reassessing your risk or underwriting you again.
This means you have to answer questions about your health and undergo tests (being underwritten) which could result in the increased amount of cover being granted at a higher premium rate, or an exclusion could be applied on the new cover.
This is the reason why you may be advised to agree upfront to an increase in your cover each year - the annual increase in cover happens without the life insurer reassessing your risk.
If you cancel your annual increase and later reinstate it, you may have to be underwritten again.
Your life insurer may offer you what is known as "future insurability" or future cover benefits allowing you to: buy more life, disability and severe illness cover, extend your cover, and freeze and reinstate your cover.
Some life insurers allow you take up an offer to increase your cover at a future date without any underwriting, while others require limited underwriting. You may be asked to provide a declaration of health or to have an HIV test. Some insurers only offer a future increase in benefits if you haven’t claimed within a certain period.
Depending on your life insurer, the future increase in cover may be limited to a certain percentage increase.
Some only allow you to increase your cover if you get married, have a child, lose a spouse, increase your mortgage bond or increase your interest in a business.
The future insurability benefit may come at an additional cost giving you the option to take it or not. In other policies, a future insurability benefit is included in the premium quoted.
