How Does Increasing Term Life Insurance Work?
As the name implies, increasing term life insurance is a type of term life policy with a payout amount that continually increases by predetermined amounts. The coverage growth will be at defined intervals, often yearly or every five years. The increase in coverage may be expressed as a percentage, such as 3% per year, or as a fixed amount, such as $10,000 annually.
Insurance companies that offer this type of term life insurance typically offer the standard term lengths of 10, 20, or 30 years. If you reach the end of the term, the policy ends, and you’re no longer insured.
One of the main benefits of increasing term insurance is that you don’t need to qualify for the additional coverage. The policy will naturally grow over time without any new underwriting.
If you die while the policy is active, the insurance company will pay out the death benefit to your beneficiaries. The amount they pay out will be in accordance with the current value, given the growth over time.
For example, if your policy started out as $150,000 and it eventually grew to $175,000 at the point of your death, the insurer would pay out $175,000. As with all types of life insurance, the money paid to your beneficiaries is cash, tax-free, and can be spent by them without any restrictions.
The specifics regarding how much the coverage increases and how often vary by insurer. It’s also helpful to know that this type of term life insurance is exceedingly rare. Most insurers instead only offer level term life insurance.
Pros & Cons Of Increasing Term Life Coverage
- Protects against inflation: Since the death benefit grows, it can offset the rising cost of living. The inflation rate is usually 2-3%, which is easily offset by the coverage growth in an increasing term policy.
- You get more coverage with no underwriting: The policy will grow organically with no required action on your part.
- Covers future needs: Life often changes, such as having more children, kids deciding to go to college, buying a larger home, and much more. An increasing term policy can help cover these future additional needs that you may not have right now.
- Term insurance is inexpensive: Since it’s a term policy, the premiums, while higher than level or decreasing term, are still much more affordable than universal life or whole life policies.
- Higher cost and less initial coverage: An increasing term costs more than a level term.
- Premiums may increase: Some insurers that offer this type of coverage will raise rates each time the death benefit increases.
- Very limited availability: It’s very rare to find an insurer that offers this type of term coverage anymore. Level term is the most common and widely available.
- Coverage will end at some point: The nature of term insurance is that it will one day expire after a defined number of years.
Increasing Term Life Vs Decreasing & Level Term
Below is a table outlining the differences between increasing term life, decreasing term life, and level term life.
| Policy Type | Premiums | Death Benefit | Cost |
|---|---|---|---|
| Increasing Term | Fixed or may gradually rise | Grows | Most costly type of term insurance |
| Decreasing Term | Fixed or may gradually reduce | Decreases | Least costly type of term insurance |
| Level Term | Fixed | Fixed | Costs less than increasing term, but more than decreasing term |
Other Ways To Increase How Much Life Insurance You Have
Buying an increasing term life policy is not the only way to increase the amount of life you have. Here are some alternate ways to obtain more coverage:
- Guaranteed insurability rider: This rider allows you to buy additional coverage based on life events such as marriage, buying a home, or having children. Often, you must select this rider when you initially apply. However, you may be able to add it up to 60 days after the policy is issued.
- Supplemental life insurance: Assuming you don’t have risk factors that render you uninsurable, you can always buy a new policy to increase the amount of life insurance you have.
- Group life insurance: People who are employed will often have access to life insurance through their job. In most cases, coverage is available without underwriting. Since the employer subsidizes part of the cost, it’s typically very affordable. Just be mindful of the fact that group life insurance policies very rarely stay with you once you leave your employer.
Frequently Asked Questions
While details for these matters vary by company, it’s generally not possible to convert or renew an increasing term policy to whole life.
Every insurer that offers increasing term with a premium that rises alongside the death benefit will have a unique pricing structure. You would need to ask each insurer what their prices are and will be in the future. Regardless of which company you buy from, the policy will include a detailed schedule showing the premiums for each policy year.
The only way you can increase a level term policy is if you have a guaranteed insurability rider that affords you the right to do so.
- Nationally licensed life insurance agent with over 16 years of experience.
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Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
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inflation rate. https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths
