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
Increasing term life insurance vs. level 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.
Policygenius 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.
Increasing term life insurance by flat rate
Before signing, review how the death benefit increases over time, whether your premiums stay fixed or can change, any maximum limits on future coverage increases, and what options are available if your coverage needs change later. Understanding these details can help you determine whether an increasing term policy fits your long-term financial goals.
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.
An alternative to increasing term life insurance: Laddering multiple policies
One of the simplest and most cost-effective ways to increase your total life insurance coverage is to purchase an additional life insurance policy. This strategy is known as laddering.
Laddering allows you to keep your existing life insurance policy while adding coverage to meet temporary or changing financial needs. Because different policies can have different term lengths and coverage amounts, you can customize your coverage as your responsibilities change over time.
For example, you might keep a 30-year term life insurance policy to provide long-term income replacement for your family and add a smaller 10-year policy when you take on a temporary expense, such as a new mortgage or business loan. Once the shorter-term obligation ends, the additional policy expires while your primary coverage remains in place.
Learn 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 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 life insurance policy, such as universal life or whole life insurance.
A term conversion rider is most useful if you need coverage to last longer, not if your main goal is simply to increase your death benefit. Converting your policy allows you to maintain life insurance coverage without going through a newmedical exam or underwriting process.
While your premiums will typically increase when you convert to a permanent policy, a conversion rider can help you avoid higher costs that could result from age-related health changes or new medical conditions. For some policyholders, this can be a more cost-effective option than applying for a brand-new permanent life insurance policy later in life.
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.
The rider itself is typically inexpensive, but your premiuems will increase if you exercise it and increase your death benefit. Like a term conversion rider, a guaranteed insurability rider can also allow you to get additional coverage without taking a new medical exam.
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 who anticipate higher coverage needs in the future, laddering multiple life insurance policies or using a rider may be better options.
Policygenius 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.
Other types of term life insurance
Increasing term life insurance FAQs
Is increasing term life insurance worth it?
Increasing term life insurance may be worth considering if you expect your coverage needs to grow over time and want your death benefit to increase automatically. However, these policies are typically more expensive and harder to find than level term life insurance. For many people, buying enough level term coverage upfront, laddering multiple policies, or purchasing supplemental coverage can provide better value.
How does the death benefit increase?
The death benefit on an increasing term life insurance policy may increase by a fixed percentage or a fixed dollar amount, depending on the policy. Your policy documents should explain how often the increase occurs, how much the benefit can grow, and whether any maximum coverage limits apply.
Are increasing term life insurance premiums fixed?
It depends on the policy. Some increasing term life insurance policies have fixed premiums, while others may have premiums that increase over time as the death benefit grows. Before purchasing a policy, review the premium structure carefully so you understand how costs may change throughout the term.
Is increasing term life insurance better than level term life insurance?
For most people, level term life insurance is simpler, more affordable, and easier to find than increasing term life insurance. Increasing term life insurance may be a better fit if you specifically want coverage that automatically grows over time to keep pace with increasing financial obligations.
What is the best alternative to increasing term life insurance?
The best alternative depends on your goals and coverage needs. Common alternatives include purchasing enough level term life insurance coverage upfront, laddering multiple term life insurance policies with different coverage amounts and term lengths, or using policy riders that allow you to adjust your coverage when available.
