Some people like to say that life insurance is pretty simple. As we showed in our recent feature on the special events increase in cover option there are, in fact, some big differences in how important parts of the contracts work. The inflation-linking of benefits is another area that, over time, can add a lot to the value of the cover. Or not, depending on the terms of the inflation linking clauses.
So what makes a good inflation linking clause?
Actually, it is easier to explain what makes a bad one:
- Benefit Limits: Three companies limit the inflation option - restricting it to only some benefits, or having different rules for, say, Trauma cover than life cover.
- Claim Limits: Three companies do not allow inflation options while the client is on claim - so life cover benefits would not increase while the client is on income protection claim, for example.
- Sum Insured Limits: Six companies apply a total sum insured limit in dollar terms or a percentage of the original cover limit. These can be hard to keep track of - as an adviser you may think a client is getting inflation adjustments, when in fact they aren't.
- Decline Limits: Two companies cease to offer inflation increases is they are declined either two or three times in a row - one a bank, another a 'direct' insurer.
- Age Limits: Finally, there are a range of ages at which the inflation linking ceases - in summary, here they are:
They range from as low as age 60 (predictably, the limit of two bank insurers) up to age 90 (Partners Life, offering the highest age limit). Most are scattered across the 30 years in between, but five terminate the inflation linking at or below age 65.
With clients increasing acquiring and holding cover well beyond age 60 you would do well to check Quality Product Research to see whether the life product you are recommending will include inflation adjustment - you don't have to search far, we automatically switch the rating of the item to zero when you have a client aged at or above the expiry age of the benefit. So all you have to do is prepare a quote and look on the research tab to see what the score for the inflation linking item is: zero means no benefit ;-)
For more information, refer to the Quality Product Research service on www.quotemonster.co.nz