Increasing Term Life Insurance
Increasing term life insurance policies feature a death benefit that grows over time. These products are designed for people who know they need coverage now but also want more coverage in the future. Your monthly premiums may also increase over time.
What Is Increasing Term Life Insurance?
Increasing term is a type of term life insurance, which means it lasts for a specific period, such as 10, 20 or 30 years.
If you die during this time, your beneficiary receives a death benefit from the life insurance company. If you die after the term, your beneficiary receives nothing.
Most term life policies are level, meaning your premiums are stable and the death benefit does not change.
However, the death benefit for increasing term policies get larger over time. This can help offset inflation or protect your growing family.
While your death benefit increases, your premiums may or may not increase as well.
Increasing term life policies are less common in the U.S. than other forms of term life insurance. They also tend to cost more than a level term policy because the potential payout gets larger over time.
How Do Increasing Term Policies Work?
If you purchase an increasing term life policy, the insurance company will offer you a sum assured. This is the guaranteed amount your death benefit will increase each year or period of years.
The sum assured can be expressed as a percentage, such as 5 percent each year, or as a flat rate amount, such as $10,000 every five years.
If the sum assured increases as a percentage, it’s usually a simple percentage and not a compounded rate.
For example, if you purchase a policy worth $250,000 with a 5 percent increasing term, your policy death benefit will be worth $312,500 after five years.
Alternatively, you may purchase an increasing term life policy for 20 years. In the first five years, it offers $100,000, then $250,000 for years five to 10, then $500,000 for years 11 to 15 and finally tops out at $1 million during the last five years.
Some plans limit how much the death benefit can grow. The incremental increase will stop after the maximum limit is reached but your policy will remain in effect.
Even though your coverage increases every year, your policy premiums may or may not stay the same. The insurance company will discuss this detail before your policy is issued.
Benefits of Increasing Term Life Insurance
Increasing term life insurance may be beneficial if you want extra protection in the future. It can help cover growing expenses, such as a larger mortgage or a bigger family.
- Covers Rising Costs
- Life can get expensive as you age. You may need more coverage in the future than you do now. If you expect to start a family or purchase a larger home down the road, increasing term life insurance can be beneficial.
- Inflation Protection
- The value of money decreases over time. Purchasing a 30-year term life policy worth $100,000 today may not be as valuable in the future. An increasing term hedges against inflation by raising the death benefit over time.
- Like all term life policies, increasing terms are usually less expensive than permanent life insurance coverage.
- No Additional Underwriting
- Increasing term insurance allows you to increase your coverage in the future without reapplying to the insurer or undergoing a new medical exam.
Additional Features of Increasing Term Policies
Some insurance companies offer riders, or special features added to your policy at an additional cost.
Riders are typically only available when your policy is first issued, so make sure to explore your options.
For example, an accelerated benefit or disability rider allows you to tap into your life insurance money when you’re still alive but facing a debilitating or terminal illness.
It’s important to note that any money used from an accelerated benefit rider will reduce the money your family receives after you die.
When your increasing term policy is coming to an end, many insurance companies will give you the option to convert to a permanent life insurance policy.
Permanent life insurance never expires as long as premiums are paid. However, the cost is often much higher than term life insurance.
If you want to continue providing for your family, ask your insurer if they offer a conversion option before your term life policy expires.
3 Cited Research Articles
- Kinney, J. (2020, January 17). What Is Term Life Insurance? Retrieved from https://www.usnews.com/360-reviews/life-insurance/term-life-insurance
- American Council on Life Insurance. (n.d.). Types of Life Insurance. Retrieved from https://www.acli.com/Consumer-Info/Life-Insurance/Types-of-Life-Insurance
- Life Happens. (n.d.). Term Insurance. Retrieved from https://lifehappens.org/insurance-overview/term-insurance/