Q

What is increasing term life insurance?

A

Increasing term life insurance is an alternative type of term life insurance with a death benefit that increases over time. It can be used to protect against inflation or future cost increases.

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By 

Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Updated January 27, 2022 | 3 min read

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Increasing term life insurance (sometimes referred to as an incremental term life insurance plan) can have set or varying premiums, depending on the insurer; the death benefit amount grows over the life of the policy. 

A level term life insurance policy is the most common type of term life insurance and the best life insurance option for most people because of its stable price and simplicity. This type of policy includes a predetermined death benefit and set premiums that don’t change over the policy term. With any type of life insurance, you can increase the amount of coverage you have by purchasing additional life insurance or adding a rider to your policy.

Key Takeaways

  • Increasing term life insurance is more expensive and complicated than level term life insurance.

  • Riders can be used to customize your term life policy if you still need life insurance when your term expires.

  • If you want to increase the amount of life insurance you have, you’ll typically need to apply for additional life insurance coverage with your insurer.

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What is an increasing term life insurance policy?

Increasing term life insurance is a type of term life insurance plan in which the face value of the policy (the death benefit) increases each year by a certain amount. It’s different from simply increasing your existing coverage amount by adding a policy or rider.

Premiums can sometimes fluctuate throughout the term, depending on your specific policy. To compensate 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 what determines life insurance rates

Advantages and disadvantages of increasing term insurance

Increasing term insurance requires higher premiums than level term insurance because of the potential for a larger death benefit later in the term. We recommend purchasing a traditional term life insurance policy with a guaranteed death benefit amount instead. 

Pros of increasing term insurance

  • Protection against inflation

  • No additional underwriting if you require more coverage later

  • 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 face value grows either by a percentage or flat rate when you have an increasing term life insurance policy.

Increasing term life insurance by percentage

Here’s an example of how the face value grows by a percentage over time for a 20-year increasing term life insurance policy:

Death benefit at time of purchasePercentage increasingDeath benefit at end of term
$100,0005%$252,695

Increasing term life insurance by flat rate 

Here’s an example of how the face value grows by a flat rate over time for a 20-year increasing term life insurance policy:

Death benefit at time of purchaseFlat rate increaseDeath 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 unique policy works. If your insurance company has a maximum limit or an atypical increment for increases, those affect the final death benefit amount your loved ones receive.

Using riders to increase your life insurance coverage

Most term life insurance policies and some permanent policies allow you to incorporate riders, optional additions 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, instead of purchasing an increasing term life policy, we recommend the following riders:

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 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. 

Guaranteed insurability rider

If you have a permanent life insurance policy, you may be able to add a guaranteed insurability rider. This rider allows you to increase the death benefit after major life events, such as a marriage or birth.  

With many of the same benefits of increasing term life insurance, a guaranteed insurability rider is useful if you anticipate needing more 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 when you need more coverage. 

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 product comes with high premium costs and a complicated death benefit structure. Policygenius does not 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.

Frequently asked questions

Can I increase my existing term life insurance?

While you can’t usually increase the death benefit amount for a term policy, you can use a term conversion rider to increase the term length and convert the policy to a permanent policy.

What is an increasing life insurance policy?

This uncommon type of term life insurance has a death benefit that increases over time.

Can you have more than one term life insurance policy?

Yes, you can have multiple life insurance policies. There is, however, a limit on how much total coverage you have, which should be proportionate to your financial obligations.