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 purchase | Percentage increasing | Death benefit at end of term |
|---|---|---|
$100,000 | 5% | $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 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 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.
