How do premiums change in an increasing term assurance policy?

In an increasing term assurance policy, the premiums are typically structured to increase each year. This type of policy is designed to provide a death benefit that also rises over the term of the policy, often in line with inflation or predetermined increments. As the coverage amount increases, the insurer's risk also grows, leading to higher premiums to account for that increased risk over time.

The rationale behind the increasing premiums is that as individuals age, their likelihood of dying increases, which also raises the cost of providing insurance. Therefore, in order to maintain adequate coverage throughout the term, the premiums need to be adjusted upwards.

This structure ensures that both the insured's coverage and the associated costs are aligned, which is particularly appealing for those looking to cover future financial responsibilities that may grow with inflation or other factors.