Falling into 5 categories, term life insurance policies are: annual renewable, level, return of premium, decreasing, and increasing terms. The last one is the least used. This discussion throws light on the latest on the list – increasing term life insurance.
What Increasing Term Life Insurance Is
You know there are more than a few types of life insurance policies and they largely branch off in two categories: whole and term. Though both types supply financial lifelines to people when the policyholder can’t be mortally there, their ways fundamentally differ. While whole life insurance provides protection throughout the policyholder’s longevity, term life insurance works only for a fixed period. Being of term genre, the increasing term life insurance policy also brings people under safety umbrella for a certain period.
Let’s also mention, there is an opposite version of this policy named decreasing term life insurance policy.
And yes, increasing term may also come in the form of a life insurance rider. That means you may also buy it as increasing term rider.
Difference with Level Term
But unlike what happens in level term life insurance , coverage amount in the increasing term life insurance policy does not remain fixed. This is at sharp variance with what term insurance in its meat and potatoes form does.
Level term, the original and classic type of life insurance, has two major features: fixed rate and guaranteed death benefit. The rate remains the same at both ends, the start and the finish. If the policyholder happens to be off on a boat, the death benefit goes to the policy beneficiaries.
When you are on the increasing term life insurance policy, your death benefit will increase as you age. The cost of the insurance will also be on the upward curve with the size of insurance premiums going higher. However, this policy entitles you to lock in the coverage at any time.
This policy is also known as the indexed term life or index-linked term policy as the death benefit continually matches or links the consumer price index.
How Increasing Term Works
As we have already said, the coverage in the increasing term life insurance climbs up at regular intervals. Depending on the portfolio, the coverage increases the following ways:
It goes up periodically at a certain increased percentage or in line with the Consumer Price Index.
The coverage follows the Consumer Price Index annually.
You can also choose to raise the coverage in accordance with your life situation.
The Pros of Increasing Term Life Insurance
On a positive note, insurers always strive hard to be innovative —to cater to the need and knack of the most of the consumers. If, however, you have critical eyes, you will understand their purpose has been to be more business-orient, if not business-aggressive. Increasing term life insurance policy is another strategic attempt from their side to win your taste. Obviously, increasing term has its pros while it is not without cons.
Good for Beginners
To put it in plain words, this plan came into being to let your coverage grow with time. The purpose is to suit the coverage to the growing need of money. The design is good if you begin your insurance when your financial ability is rather currently low or you have some other reasons. You may want to have bigger coverage as your income potential grows annually with increment, promotion or raise in salary.
Another practical reason is to suit your coverage to the inflation. Inflation, you know, is the diminishing capacity of your dollar that leaves a mark on your money. For it, you cannot buy the same thing with your C-note that you could a year or two ago.
Depending on the inflation rate, prices double over nearly two to three decades. According to Bradford M. Pine at 2% inflation, it takes 36 years (Huffingtonpost). On the other hand, Suze Orman claims that it takes 20 years for the prices to go double. So, if you buy coverage of $250,000 for 30 years, its real value will be of $125,000 in the end . That is, the real value of the $250,000 will go down by 50%. It being linked to the Consumer Price Index (CPI) analysis, you can remain safe in terms of real money value. You are more likely to have the right amount you would need as coverage.
Inclusive of Life Situation
Occasions like marriage, remarriage, birth of children are times when you certainly need to consider raising your coverage. Your increasing term life insurance policy has this option for you.
Covers Sudden Expenses
The freedom to raise the coverage proves good when you might have missed calculating unexpected expenses during calculating needs. You may have loan amounts not taken into account or taken out in sudden situations. An increasing term life insurance plan gives you the chance to meet up such demands.
One Time Fitness Check
That you do not need to go through any fitness check to raise your coverage is a positive aspect of the policy. Your initial health report works throughout the term period.
Reflects Living Standard
Increasing term policy is a good option for the young people who are toward the beginning of their career. As time passes by, many things in their lives change. These changes have their reflections in their living standards. The increasing term life insurance policy helps the beneficiaries maintain the standard.
Guaranteed Death Benefit
Like the level term insurance policy, the death benefit of increasing term life insurance is guaranteed. If the policyholder passes away within the term leaving no payments due, the beneficiaries receive the benefit.
The Cons of Increasing Term Life Insurance
Like all kinds of term insurance policies, increasing term is not without drawbacks. This policy, like its rival, the level term insurance, does not have a maturity value. You receive nothing when you outlive the term.
Your increasing term life insurance policy leaves you off insurance protection when your term is over.
Unless you already lock in your coverage, the cost of the coverage keeps potentially growing, especially toward the term’s end. Often this is a waste of money because there is no refund for those who outlive the term.
What Life Insurance Mentors Say
Increasing term life insurance is good for people who are still at entry level in their careers. Until settled in their perches, they cannot be sure about the right coverage they would need. Before they have started their families, they can consider taking it out for a tentative case.
Finding an increasing term policy is, however, as impossible as finding a hen’s teeth in many parts of the world. And the best alternative is the level term — the queen of term insurance.