How Is Increasing Term Life Insurance Normally Sold?
Increasing term life insurance is a type of term life insurance that lasts for a certain period, such as 10, 20, or 30 years. If you pass away during the term, your beneficiary will receive a death benefit from the insurance company. However, if you die after the term, your beneficiary will not receive anything.
Most term life policies are level, which means your premiums are stable, and the death benefit does not change. However, the death benefit for increasing term policies gets larger over time, which can help offset inflation or protect your growing family. While your death benefit increases, your premiums may or may not increase as well.
| Policy Type | Premium Stability | Death Benefit Changes |
|---|---|---|
| Level Term | Stable | No Change |
| Increasing Term | May or May Not Increase | Increases Over Time |
Increasing term life policies are not as common in the U.S. as other forms of term life insurance and tend to cost more than level term policies because the potential payout gets larger over time.
If you purchase an increasing term life policy, the insurance company will offer you a sum assured, which 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.
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.
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.
Increasing term life insurance may be beneficial if you want extra protection in the future to cover growing expenses, such as a larger mortgage or a bigger family. 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.
If you’re interested in purchasing an increasing term life insurance policy, talk to an insurance agent or financial advisor to determine if it’s the right choice for you and your family.
