What is increasing term life insurance?
Increasing term life insurance is a type of insurance that allows you to enhance your death benefit over time without requiring new underwriting. This type of life insurance is relatively uncommon.
The most common type of term life policy is level term insurance, which has a flat premium and death benefit throughout the term. However, some people get increasing term life insurance because they expect to require more life insurance in the future. For example, you might buy this type of policy if you intend to earn a larger salary, want to start a family, have more financial responsibilities in the future, or are concerned that inflation will reduce the value of your death benefit.
Some rising term life insurance have constant premiums, while many raise premiums as the death benefit increases. Fixed premiums are often higher than level term insurance premiums.
Depending on the insurer, your death benefit may increase by a flat sum or a certain percentage each year. Some policies may permit incremental increases on a different schedule. Your insurer may limit coverage increases to the policy’s early years, such as the first five. In that case, your coverage will continue for the remainder of the policy’s term, but you will not be able to automatically increase the death benefit.
Increasing vs. decreasing term life insurance
In contrast, some people purchase decreasing term life insurance, the inverse of increasing term life insurance. Over time, the death benefit of a diminishing term policy decreases. Because the death benefit progressively decreases, this policy is typically less expensive than growing or level term life insurance. Premiums are generally level, so you pay the same amount for less coverage over time.
People may get mortgage protection insurance, a type of decreasing term life insurance, to pay off the remaining balance on their home loan if they die.
Alternatives to increasing term life insurance
If you anticipate that your life insurance needs will grow over time, a rising term life insurance policy isn’t your only alternative. Here are some options to consider.
- Guaranteed insurability rider: With this life insurance rider, you can raise your coverage on a regular basis without having to undergo a new medical exam or underwriting. You will pay greater premiums if you increase the death benefit. Guaranteed insurability riders are unusual on term life insurance contracts.
- Cost-of-living rider: A cost-of-living rider allows you to adjust the death benefit to keep up with inflation.
- Purchase additional term coverage: As your coverage requirements grow, you can consider purchasing a new term life policy. The disadvantage is that you will have to undergo new life insurance underwriting. Also, even if you’re in good health, life insurance costs more as you get older, so your premiums will most certainly rise.
