Q

What is increasing term life insurance?

A

An increasing term life insurance policy is a uncommon type of term life insurance with a death benefit that increases over time. It can protect beneficiaries from inflation or future cost increases.

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By

Rebecca Shoenthal

Rebecca Shoenthal

Licensed Insurance Expert

Rebecca Shoenthal is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

Published April 14, 2021|4 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 price and simplicity. This type of policy includes a predetermined death benefit and set premiums that don’t change over the policy term. You can usually increase the amount of life insurance you have by purchasing additional life insurance or adding a rider to your policy, but that can be costly as you age.

Key Takeaways

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

  • Riders can help 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

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 for the amount you anticipate needing over the entire life of the term. 

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

How does increasing term insurance work?

Increasing term life insurance works the same as other term life insurance products: you pay a premium (either a set premium or an increasing premium) in exchange for a tax-free death benefit for your beneficiaries when you die. Term life policies last for a set period (usually 10-30 years). The main difference between an increasing term life policy and a level term life policy is the death benefit amount, which gradually increases (hence the name) the longer you own the policy.

When you buy an increasing term life insurance policy, you’ll decide on the face value (death benefit amount) as you would with any life insurance policy. Your insurer will also determine your sum assured (the percentage or flat-rate amount that the death benefit will increase each year that you own the policy) and the maximum limit (the highest amount your death benefit amount can reach).

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%$265,330

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 would affect the final death benefit amount your loved ones will 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 goes with. But, like a term conversion rider, it allows you to skip the medical exam when you need more coverage. 

Additional types of term life insurance

Term life insurance is one of the most popular types of life insurance because of its affordability and simplicity. If you want to explore alternative term life insurance options aside from increasing term life insurance, there are several other variations to choose from, including:

  • No-medical exam term life insurance — Allows you to skip the life insurance medical exam and still receive coverage.

  • Annual renewable term life insurance — Renews on a year-by-year basis; premiums usually start lower than a standard term life policy and increase each year.

  • Group term life insurance — Offered through the workplace and often subsidized, but not portable from employer to employer. (So if you have life insurance through your employer and then go to a different job, that life insurance will not be active any longer).

  • Mortgage protection insurance — Decreasing term insurance where the beneficiary is your mortgage provider and the term and benefit amount are tied to (and decrease according to) your mortgage length.

  • Return of premium term life insurance — Allows you to get your premium payments back at the end of the term.

  • Decreasing term life insurance — Premiums remain the same, but the benefit amount decreases each year. We don’t recommend this type of policy.

Is increasing term life insurance worth it?

Proponents of increasing term life insurance argue that it protects against inflation and helps shoppers who anticipate growing their family or assets drastically over time. However, this specific term life product is rarely purchased in the U.S. and is not a great fit for most people because of the high premium costs and complicated death benefit structure. For these reasons, we don't currently offer increasing term life insurance through Policygenius, but our experts are happy to walk through our other term life insurance products to help find the best fit, no matter what.

Increasing term life insurance FAQs

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 as long as your combined policy amounts do not outweigh your financial obligations minus your assets.

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