Increasing Term Life Insurance
Jessica Fox 30-11-2021

What You Should Know About Increasing Term Life Insurance?

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There is an exciting type of term life insurance available to applicants interested in having a flexible policy that increases over time, called increasing term life insurance.

Consider increasing term insurance as a way to protect your beneficiaries from the rising cost of living by having a life insurance policy that rises the same way inflation does; this means the death benefit will be greater than the original face value.

So how does increasing term life insurance work? We’ll cover that below!

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What Is Increasing Term Life Insurance?

If you are concerned about the rising cost of living, and you don’t want your beneficiaries to needlessly suffer when you are gone — especially if you’re the breadwinner — then you may want to consider increasing term life insurance. 

Put simply, you pay higher rates than level term life insurance (the most popular term life product with fixed rates and fixed death benefits), but the trade-off is the death benefit payout increases by a certain amount over time. However, increasing term life differs from adding a rider to your policy to increase your existing coverage.

Pros And Cons Of Increasing Term Insurance

As mentioned, increasing term life insurance premiums are higher than other term life products due to fluctuating death benefits. However, there are some considerable benefits and downsides to increasing term life insurance that can help you determine if it’s the right product for your life insurance needs.

Benefits Of Increasing Term Insurance

  • Protects your beneficiaries against rising inflation rates because a $200,000 face value when you bought the coverage doesn’t hold the same value come the end of your term life insurance.
  • It helps cover large future expenses, like buying a house.
  • If you need more coverage at any point, you won’t need additional underwriting.
  • Term life insurance is more affordable than permanent life insurance.

Downsides Of Increasing Term Insurance

  • Fluctuating premiums as rates aren’t fixed
  • Higher premiums
  • There is a maximum death benefit payout
  • Not commonly offered among insurers

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How Increasing Term Life Insurance Works?

Increasing term life insurance functions much the same as other life insurance products; you buy a face value amount and pay the associated rates to guarantee your coverage — and as always, death benefits are tax-free. As the name suggests, term life covers a term such as 10 years but where it differs from level term life is, the rates are higher and death benefits will climb as the policy matures.

When it comes to purchasing your increasing term life insurance, the applicant picks their policy face value and then the insurance provider has to figure out:

  • The sum assured or how much your death benefit increases, year after year; this could be a percentage (5% a year) or a flat rate ($10,000 every 5 years).
  • What the maximum policy limit payout will be.

Increasing Your Life Insurance With Riders

If you’re looking to extend your life insurance coverage or make your terms and conditions more flexible without buying increasing term life insurance, you can also do so with a rider.

These are the best riders for increasing your life insurance:

  • Term Conversion: Rather than get another medical exam at the end of your term life policy, purchase a term conversion rider as it will allow you to port your coverage into whole life or permanent life insurance. There will still be a price increase; however, this rider protects you from having to pay more because of your age or new health conditions.
  • Guaranteed Insurability: For permanent life insurance policyholders, if you have the guaranteed insurability rider, you can increase the payout (death benefit) following a major life event, like a birth. If you think you may need more death benefits than you originally anticipated, this rider, although expensive, gives you the opportunity to up your coverage without a medical exam.

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Why You Should Consider Increasing Term Life Insurance?

Let’s face it when you begin your hunt for the perfect life insurance; there are so many options that it can be overwhelming to know which one is the best option for you. One option that you may not have heard of is increasing term life insurance. Although it’s an uncommon policy option, it does have its merits; namely, the death benefit increases over time, meaning more money to your loved ones when you’re gone. Be sure to examine all your options, including increasing term life insurance before you decide which life insurance works best for you!

Jessica FoxJessica Fox has been a freelance writer for five years, with a specialty in health, wellness, and insurance. During this time, she’s written for some of the biggest B2B and B2C brands from around the world. Jessica is also the mother of two young daughters and loves coffee, writing, and working out.