What is Increasing Term Life Insurance?
Increasing term life insurance is a relatively uncommon type of term life insurance with a death benefit that goes up over the years. The policy’s premiums may be fixed or they may increase over time, too.
How increasing term life insurance works
The most common type of term life insurance is level term insurance. The “level” refers to both the policy’s premiums and the death benefit. With these policies, the amount you pay and the amount your beneficiaries would receive at the time of your death stay fixed throughout the policy’s term, which is usually 10 to 30 years.
Some people expect their insurance needs to increase over time, though. In those cases, they may turn to an increasing term life insurance policy. If you just had your first child but plan to have more, for example, you might want to put coverage in place now while knowing that it will increase as your family grows.
The way the increasing term policy works varies depending on the insurer and the individual policy. The death benefit might increase by a certain percentage or by a lump sum annually, for example. Or your policy might offer a set benefit for a specified length of time (e.g., the first ten years), then increase periodically for the remainder of the term. It may also come with a death benefit maximum. Once reached, the policy stops increasing but coverage stays in effect through the duration of the policy term.
Some increasing term life policies come with fixed premiums, but many have premiums that go up along with the death benefit. If the premiums are fixed, they’ll usually cost more than the premiums of a level term life insurance policy.
In short, increasing term life insurance gives you a way to buy coverage now with benefits that can increase as your coverage needs grow, all without additional medical underwriting down the road. But it will likely cost more than a level term policy.
Increasing vs. decreasing term insurance
Some people expect their coverage needs to increase over time because of a growing family, advancement in their career, increased assets, inflation, and/or other factors. But other people anticipate the need for decreased coverage as time goes on.
If you’re primarily buying life insurance to avoid leaving your partner with the mortgage you share, for example, your need for coverage goes down as you pay off that debt. So in addition to increasing term life insurance, insurers also offer decreasing term insurance.
This is essentially increasing term insurance’s opposite. Over time, the death benefit of a decreasing term policy goes down. That decrease might correspond with your mortgage amortization or another debt payoff schedule. Decreasing term insurance is generally more affordable than increasing or level term insurance.