Increasing term life insurance has a death benefit that increases over time. This type of term life insurance policy can have fixed or varying costs, depending on the insurer. It’s best for people who want to hedge against inflation or know they want increased coverage in the future.
However, the cost of increasing term life insurance rarely makes sense compared to other options. If you think you might need to increase your death benefit amount in the future, it’s worth considering using a rider to add more coverage to your existing policy, or getting a supplemental level term life insurance policy instead.
Learn more about having multiple life insurance policies
What is an increasing term life insurance policy?
Increasing term life insurance is a type of term plan in which the payout of the policy increases each year by a predetermined amount. It’s different from simply increasing your total existing coverage amount by adding another policy or a rider.
Your premiums can sometimes fluctuate throughout the term, depending on your specific policy. To account for a larger death benefit over time, premiums for increasing term policies are higher than they’d be for a level term policy.
Learn more about the cost of life insurance
Advantages & disadvantages of increasing term life insurance
Increasing term insurance is more expensive than level term insurance because of the potential for a larger death benefit later in the term.
policycentral experts recommend purchasing a traditional life insurance policy with a guaranteed death benefit amount instead because it provides more value for the cost.
Consider the pros and cons of an increasing term policy before pursuing this option.
Pros of increasing term insurance
Protection against inflation
Potential for coverage without additional underwriting
Covers future expenses, such as buying a home or having children
Cons of increasing term insurance
Higher initial premiums for less initial protection
Maximum limits can prevent larger death benefit payouts
Premiums can fluctuate
Difficult to find a policy in the U.S. with major insurers
Increasing term life insurance: percentage vs. flat rate
The death benefit grows either by a percentage or flat rate when you have an increasing term life insurance policy.
Increasing term life insurance by percentage
Below is an example of how the death benefit grows by a percentage over time for a 20-year increasing term life insurance policy.
Death benefit at time of purchase | Percentage increasing | Death benefit at end of term |
|---|---|---|
$100,000 | 5% | $252,695 |
Increasing term life insurance by flat rate
Below is an example of how the death benefit grows by a flat rate over time for a 20-year increasing term life insurance policy.
Death benefit at time of purchase | Flat rate increase | Death benefit at end of term |
|---|---|---|
$100,000 | $25,000 every 5 years | $200,000 |
It’s important to review your increasing term life insurance policy (or any policy) with your agent or broker before signing to make sure you understand how your policy works.
Getting a supplemental life insurance policy
The simplest and cheapest way to increase the total amount of life insurance coverage you have is to get an additional life insurance policy. Setting up multiple life insurance policies is called laddering.
Laddering allows you to keep the life insurance you currently have, but add other policies to provide the financial protection you’ll need at various times in your life.
How to save money by laddering life insurance policies
Using riders to increase your life insurance coverage
Most term life insurance policies and some permanent policies allow you to incorporate riders — optional add-ons that can extend your coverage and add flexibility to the terms and conditions.
If your goal is to have a flexible policy that allows you to add more coverage over time, there are other options you can consider instead of purchasing an increasing term life policy. These include a term conversion insurance rider and guaranteed insurability rider.
1. Term conversion insurance rider
If you’re approaching the end of your term and still need life insurance coverage, a term conversion rider allows you to convert a term life insurance policy into a permanent or whole life insurance policy.
You still have to pay more if you want more coverage, but this rider can help you avoid additional price increases due to your advanced age or new health issues because it doesn’t require a new medical exam. It can be a cost-effective alternative to re-applying for a brand new policy.
Learn more about the differences between term and permanent life insurance
2. Guaranteed insurability rider
If you have a permanent life insurance policy, you may be able to add a guaranteed insurability rider. This policy add-on allows you to increase the death benefit after major life events, like getting married or having a baby.
With many of the same benefits of increasing term life insurance, a guaranteed insurability rider is useful if you anticipate needing more coverage as you get older.
This rider won’t be cheap, and neither will the permanent life insurance policy that it pairs with. But, like a term conversion rider, it allows you to skip the medical exam if you need more coverage later on.
Learn more about the differences between term life and permanent life insurance
The bottom line
Increasing term life insurance can protect against inflation and help those with family or assets that will grow drastically over time. However, this specific term life policy comes with high premium costs and a complicated death benefit structure. For most people, laddering multiple life insurance policies or using a rider are better options to consider if you need to increase your coverage.
policycentral doesn’t currently offer any increasing term life insurance, but our experts are happy to walk through our other term life insurance products to help find the best fit, no matter what.
