Increasing Term Life Insurance

As always, when comparing different types of life insurance, it is essential to review the terms, costs, and features and select coverage that meets your requirements and objectives.

Incorporating an increasing term into your life coverage is one of many ways to augment the financial safeguards put in place for your beneficiary–you might also choose a family income rider, for example, or opt for supplementary accidental death & dismemberment (AD&D) coverage to help ensure you cover as many potential scenarios as possible.

If you were interested in AD&D, the key difference between life insurance and accidental death and dismemberment is that AD&D insures unforeseen fatalities such as traffic collisions or serious injuries that impact your ability to earn the same income as prior to the accident. Meanwhile, increasing term coverage helps ensure that the value of your life insurance increases to help offset inflation and rising costs, whether you anticipate your family needing greater financial support in the years to come or want to know that your life insurance should not drop in real-terms value due to inflation.

The specific structure of your insurance product will dictate the way the coverage increases in value, often coinciding with a higher monthly premium. The mechanism could potentially include:

●       Annual adjustments based on the Consumer Price Index (CPI)
●       Annual increases calculated against a predefined percentage

For example, you might purchase an increasing term policy linked to a 5% term, where the coverage increases yearly by that percentage of the original value. As the amount of coverage increases, so do the premiums you might be required to pay.

Term insurance products normally have a fixed coverage period, which might last for ten years or usually up to thirty years. A level term product means that the death benefit and the premiums you pay do not change over that time.

Increasing term coverage may also have a finite maturity date or end when the policyholder reaches a certain age. It is important to understand the length of the policy before making any decisions.

The exact coverage may depend on your circumstances, but you can use this type of life insurance to:

● Help provide financial support to help your family sustain the same living standards if you pass away.
● Help cover the costs of repaying a mortgage or providing your beneficiary with sufficient death benefits to cover all outstanding debts, including those linked with increasing interest rates.
● Put insurance in place that would help to cover college tuition costs if you pass away before a child reaches adulthood.

While the premiums associated with an increasing term life insurance product are potentially higher than for a level policy and subject to periodic increases, the advantage is that the impacts of inflation will not erode the value of the death benefit payable to your beneficiary.