Given the fact that a lot of policies increase the premium on an indexed life insurance policy by 8% and the benefit only by 5%, is indexation EVER worth it?
For a short term policy (less than 10 years), the impact of inflation will be relatively low anyway and, for a long-term policy, the premiums will go too far out of whack when compared to the sum insured after a while.
As an example, the quote I can get for an indexed 30-year policy with €120,000 level-term protection is €103.27.
The final years premium for the indexed policy would be €962.19 for €493,936 protection.
A non-indexed policy to provide that level of protection for the entire term of the policy would cost me €309.34 per year.
One may view this as excessive because there is a €206.07 premium difference annually. However, the premium for the indexed option would actually exceed the premium for the non-indexed option after only 13 years of the 30 year term.
Basically, in selecting the non-indexed option, you pay a larger premium during the initial years but, in doing so, make savings in the premiums in the later years - and significant savings at that. You also have the entire amount of the protection for the whole term of the policy as opposed to relying on inflation to increase it.
I know I'd rather pay €309.34 per year for the life of the policy than pay €103.27 for the first year increasing each year until it reaches €962.19 for the final year. Basically, the first number of years will be tough but, each year, the premium should be more manageable as inflation eats away at it's value and then, after 13 years, you're paying less than you would have with an indexed option anyway.
Doing this makes sense to me - although I'm not sure that a financial advisor would recommend it because a person should not need the €493,936 protection for the initial years of the policy and, therefore, I believe a policyholder may have a potential case for mis-selling if they were advised along these lines. However, just because you don't need it, doesn't mean that it's not nice to have - expecially if it's unlikely to cost you more in the long-term.
For a short term policy (less than 10 years), the impact of inflation will be relatively low anyway and, for a long-term policy, the premiums will go too far out of whack when compared to the sum insured after a while.
As an example, the quote I can get for an indexed 30-year policy with €120,000 level-term protection is €103.27.
The final years premium for the indexed policy would be €962.19 for €493,936 protection.
A non-indexed policy to provide that level of protection for the entire term of the policy would cost me €309.34 per year.
One may view this as excessive because there is a €206.07 premium difference annually. However, the premium for the indexed option would actually exceed the premium for the non-indexed option after only 13 years of the 30 year term.
Basically, in selecting the non-indexed option, you pay a larger premium during the initial years but, in doing so, make savings in the premiums in the later years - and significant savings at that. You also have the entire amount of the protection for the whole term of the policy as opposed to relying on inflation to increase it.
I know I'd rather pay €309.34 per year for the life of the policy than pay €103.27 for the first year increasing each year until it reaches €962.19 for the final year. Basically, the first number of years will be tough but, each year, the premium should be more manageable as inflation eats away at it's value and then, after 13 years, you're paying less than you would have with an indexed option anyway.
Doing this makes sense to me - although I'm not sure that a financial advisor would recommend it because a person should not need the €493,936 protection for the initial years of the policy and, therefore, I believe a policyholder may have a potential case for mis-selling if they were advised along these lines. However, just because you don't need it, doesn't mean that it's not nice to have - expecially if it's unlikely to cost you more in the long-term.